Why ASX agricultural shares are high on institutional investors’ radars

At the end of the day you can survive without gold but not without food.

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ASX agricultural shares are increasingly drawing the attention of institutional investors.

Among other factors, the big money is being drawn by Australia’s reputation for high-quality foods, its location near huge Southeast Asian populations, and the simple fact we produce a lot more than we consume.

And it doesn’t hurt ASX agricultural shares that total production is forecast to grow 8% year-on-year to almost $66 billion, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

With a glance at past performance, 2020 was highly profitable for much of Australia’s farmland. As the Australian Financial Review notes:

The latest Australian Farmland Index, which tracks the performance of a $1 billion basket of premium assets, found that farmland planted to annual broadacre crops such as wheat and canola or used to graze cattle and sheep delivered a nearly 30 per cent total return in 2020.

Almonds, grapes, citrus and other crops requiring more water and labour are often strong performers. But this segment underperformed in 2020, with a 4.8% total return.

What the experts are saying

Jos Boeren is Stafford Capital Partners’ head of agriculture and food investments. Speaking of Aussie farmland, Boeren said (quoted by the AFR), “We are increasingly being contacted by institutional investors who are looking to invest significant capital into farmland and timberland.”

Indeed, the number of funds seeking to invest in Aussie agriculture is rocketing. According to Colliers International’s head of agribusiness, Rawdon Briggs, “At present, there are approximately 43 food and agribusiness funds investing in all forms of agriculture compared
to only two in 2009.”

And the arrival of big money into the sector is helping increase efficiency and productive capacity in the market.

Jim McKay, Warakirri’s managing director said, “It’s one of the reasons why you are seeing a lot of interest from global pension funds in agriculture.”

2 leading ASX agricultural shares

There are a number of quality ASX agricultural shares investors can look into. For the purposes of this article, we’ll look at 2.

First up, Rural Funds Group (ASX: RFF). The company is a real estate investment trust (REIT), which holds and leases agricultural property and equipment.

Rural Funds has a market cap of $867 million and pays a dividend yield of 4.4%, unfranked. Over the past 12 months, the Rural Funds share price has gained 26%, outpacing the 20% gains posted by the All Ordinaries Index (ASX: XAO). Year-to-date, Rural Funds’ shares have been under pressure, down 3%.

Select Harvests Limited (ASX: SHV) also has a place among the leading ASX agricultural shares. The company processes and distributes a range of nuts, dried fruits, seeds, and natural health foods.

Select Harvests has a market cap of $699 million and pays a 2.2% dividend yield, fully franked. The Select Harvests share price is down 11% over the past 12 months. 2021 has been off to a stronger start for the ASX agricultural share, which is up more than 9% year-to-date.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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