Australia has been described as the “food bowl of Asia”. Our abundant productive farm land, strong history of agricultural success, and advanced technology gives Australia a head start versus competitor countries. For investors and farmers though, there are a number of issues that make agricultural stocks inherently risky and volatile.
To start with, we have no control over the weather and increased supply from competitor countries can result in rapid changes in the realised price of goods sold, just like any commodity. Notably though, over the long term Australia’s listed agricultural companies have performed well and recent takeover action has increased investor interest in the sector. Here are three of the best for investors willing to accept some commodity risk:
Australian Agricultural Company Ltd (ASX: AAC) is Australia’s largest producer of cattle for export and from September 2014 will have a facility in Darwin dedicated to the export of processed meat into Asia. The company also owns a huge amount of land that produces feed grain, wheat, sorghum, and cotton. Earnings are forecast to grow strongly in coming years and could be set for a period of outperformance.
Select Harvests Limited (ASX: SHV) is the owner of almond orchards and grows, processes, packages, and distributes almonds. It is Australia’s second largest almond grower and exporter. It also manufactures and sells a range of other nuts, dried fruits, seeds, and natural health foods in Australia, Asia, Europe and the Middle East. Select has benefitted from improving consumer interest in healthy foods and a two-year drought in California’s almond growing region that has pushed up almond prices. Earnings are expected to continue growing rapidly in FY15 and FY16 as the company benefits from a lower Australian dollar and growing demand.
Finally, a riskier investment is Clean Seas Tuna Limited (ASX: CSS). Clean Seas has spent much of the last two years attempting to switch from a producer of Southern Bluefin Tuna to a producer of the in-demand Yellowtail Kingfish. The company’s share price is up 190% over the last 12 months, but only 15% this year as investors await further updates about when the company will turn a profit from operations. Previous guidance was for FY15 to be a profitable year and any change will likely result in a significant jump or fall in the share price.