Agriculture looms as growth sector

06/02/2008 - 22:00

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Australian agribusiness stocks have performed solidly both in the short and longer term, with the Australian Agribusiness Group’s index of agricultural stocks showing strong returns over the past five years compared with the All Ordinaries index.

Agriculture looms as growth sector

Australian agribusiness stocks have performed solidly both in the short and longer term, with the Australian Agribusiness Group’s index of agricultural stocks showing strong returns over the past five years compared with the All Ordinaries index.

The Agri-Index, which tracks the performance of 56 agribusiness stocks, shows the sector experienced an average annual growth of 17 per cent each year since the index began in October 2000, despite the country recording its worst drought on record during that time.

Over the same period, the All Ordinaries averaged growth of 12 per cent per year.

The index also showed steady investor confidence in agriculture stocks during recent market turbulence.

For the month of January, the Agri-Index lost 6 per cent of its value, compared with the All Ordinaries’ 13 per cent.

The index includes agricultural companies across a variety of sectors including grain, wine-grapes, forestry, livestock, aquaculture, chemical, fertiliser and food manufacturing.

Australian Agribusiness Group director Tim Lee said the soft commodity boom, on the back of higher commodity prices and growing demand, was drawing investor attention onto agricultural stocks.

“Agriculture has been top of mind for a lot of people over the past six to 12 months,” Mr Lee told WA Business News.

“People are more aware of agriculture and accepting it as an asset class in its own right.”

Mr Lee said investors may be looking towards agricultural stocks to diversify their portfolios, with the current issues affecting markets appearing to have little effect on the agricultural sector.

“Crops don’t know about issues in the global credit market...investors recognise agricultural stocks provide diversity,” he said.

Among the best performers on the index for the volatile January period were Namoi Cotton Ltd and GrainCorp Ltd, which both increased by 27 per cent, Clean Seas Tuna, up 13 per cent, CostaExchange Ltd and Futuris Ltd, both up 7 per cent.

Among the worst performers were the biofuel companies Australian Biodiesel Group Ltd and Australian Renewable Fuels, down 34.4 and 22.4 per cent respectively, Prince Hills Wine Ltd, down 33.3 per cent, Timbercorp Ltd, down 29.4 per cent, and AWB Ltd, down 25.9 per cent.

Mr Lee said the outlook for agribusiness stocks remained strong, with commodity prices set to continue on their upward run.

“The agricultural industry is moving from one where there’s sufficient supply to one where there’s an undersupply.”

Patersons Securities research strategy coordinator Andrew Quin said despite some companies experiencing individual problems, such as AWB and some of the timber companies, other sectors, such as the chemical and fertiliser manufacturers, were doing very well.

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