Month: August 2015

August 2015 Update
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** Chinas Black Monday is New Zealand’s Green Tuesday
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** Why is Agriculture becoming so popular with investors
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Hello!

The news of Chinas Black Monday might have been more abrupt than most commentators had predicted – however it certainly wasn’t something they didn’t see coming. As the Chinese Stock exchange dropped 9% it sent reverberations around the world – nearly all markets were effected. Its seems in the most part that the markets recovered as the day went on, but it reiterated why Agricultural based investments are becoming so popular.

In the current investing climate, defined largely by economic uncertainty, low interest rates and volatile equity markets; investors are seeking out assets and sectors that display certain characteristics.

Of particular interest are assets supported by solid, long-term fundamentals. Assets that offer preservation of capital, low volatility and an opportunity to generate income, mark the highest. Throw in an investment performance that is not correlated to the performance of traditional financial markets and most boxes are easily ticked. From investing in shares to investing in farmland, agriculture investments tick many boxes for today’s investors looking to the future, and remain high on the agenda of both institutions and private individuals alike.

** Rising Demand and Diminishing Supply – the Basis for Agriculture Investments

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If the goal is to acquire assets that are non-correlated and inflation-linked, and which retain value throughout all economic cycles, then the best bet is of course well-managed,productive agricultural land.
For many investors, the ‘Real Asset’ approach is preferred as it means the investment is secured by land ownership giving not only capital appreciation, but also capital preservation and income in perpetuity for generations to come. And by investing in productive farming in another country / economy e.g. New Zealand it gives further diversification to the portfolio.

Prospective forest farmland investors should understand however, that specific expertise is required during the acquisition and due diligence process in order to identify and manage suitable assets.

** New Zealand’s Green Tuesday?
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To find out how we can help you take advantage of our favourable exchange rate with land ownership in New Zealand please get in touch.Agricultural assets have outperformed the vast majority of traditional asset classes over most timelines, delivering highly favourable risk-adjusted returns for those with well managed exposure to the asset class. Well managed agricultural land is an asset which remains productive in perpetuity.

Regards,

Will Dickie

The recent collapse in dairy prices does not equate to long-term structural market change in the sector, rural lending specialist Rabobank said.

The bank said in a commentary that while the sector was experiencing a severe cyclical downturn, a “substantial” improvement in prices was still expected by mid-2016.

Rabobank NZ chief executive Ben Russell said the long-term fundamentals for the dairy sector have not altered.

“Contrary to some recent analysis and commentary on the New Zealand dairy sector, Rabobank’s view is the current price trough is part of an extended negative phase of the commodity cycle and not a structural, permanent change to supply and demand dynamics,” he said.

“While the season ahead will undoubtedly be difficult for dairy farmers, the bank is firmly of the view that prices will recover to more sustainable levels over the medium term,” he said.

“Current market conditions are not the ‘new normal’, but a highly abnormal part of a difficult cycle,” he said.

New Zealand remained well-placed to continue to play an important in this improved future for the global dairy industry. “But first it must ride out the storm,” the bank said in a report.

Rabobank senior dairy analyst Michael Harvey said the extent of the market collapse was – for most in the industry – “beyond expectation” and inevitably led to milk price forecasts for the 2015/16 season being slashed.

A 19 per cent fall in prices over the course of two GDT auctions in July and August took the market down from already painful levels to a low not seen since 2002.

“Given NZ production costs have increased significantly since 2002, you have to go even further back to finding pricing this far below the cost of production,” Harvey said.

The report said the global dairy market had already been well on its way to a correction in 2014 – from previous record-high prices.

“Unfortunately, this downturn was then exacerbated by several other developments, including China slashing its purchases, Russia banning dairy imports from the EU, plus EU dairy quotas being removed in April this year,” it said.

Rabobank said that while dairy prices were unlikely to be much improved over the next six months – as the market “strives to turn off the taps of supply growth in the face of weak demand requirements” – the factors that will trigger a turnaround were now in place.

In the medium term, Rabobank said that in wholemilk powder equivalent terms, prices would need to hit between US$3000-$4000 tonne in order to balance the global market.

On the NZX, whole milk futures prices have rallied on the prospect of less product being put up for sale by Fonterra, suggesting physical prices may start to rebound at tomorrow’s GlobalDairyTrade (GDT) auction.

Fonterra has forecast a 2 per cent fall in milk production this season, but analysts said increased culling, declining use of supplementary feed, and less off-farm grazing could lead to a bigger decline, which would also be supportive for prices. 

Future looks bright for those with foresight as IKEA and Apple are buying up whole forests. 
IKEA bought 83,000 acres of forest last month. In April, Apple bought 36,000 acres. What’s the
reasoning behind these retail giants buying their own forests? To manage them. 

Last year, we saw major technology and retail companies buying up wind and solar farms. Walmart,
Facebook, Apple, IKEA, Google — all decided to either build or buy renewable energy farms. Nearly
as many made pledges to start using fully renewable energy sources: IKEA said it would become
“energy independent”. Facebook is already using all-renewables-powered data centres to manage all
your likes. Now, some of them are going further down the supply chain to manage the provenance
of their materials — by buying up the forests that source their paper and wood. 

Last week, The Wall Street Journal reported that IKEA had bought up almost one hundred thousand
acres of forest in Romania and the Baltic — this, after the company had been accused of “brutal”
logging practices in Russia and cutting “old forests that have high conservation value,” according to
the WSJ. The company doesn’t log in Russia anymore, and instead will focus on farming its Romanian
forests, managing its purchase to create a renewable source for its operations. After all, IKEA uses
one per cent of the world’s wood supply, a number it’s trying to scale back by half. It’s all part of the
company’s plan to become “forest positive” in the next five years, growing more wood than it uses. 

Similarly, Apple recently bought up a 36,000 acres of forest in Maine and North Carolina. These
areas are “working forests,” or regions that act as renewable sources of wood and paper pulp for
industry. Apple and the Conservation Fund, which is collaborating on the project, says that these
“working forests” are increasingly being developed. That’s not only bad news for them commercially,
but bad news for forests that were once outside the scope of industry — as Apple’s Lisa Jackson
explained in a post about the purchase: 

We are in the midst of one of the greatest land transfers in history. In the last 15 years, we’ve
already lost 23 million acres of forestland that provided the pulp, paper, and solid wood material for
products we all use. That’s roughly an area the size of Maine. As land continues to be sold and
change hands at an alarming rate, an estimated 45 million more acres are currently in the crosshairs
of development. 

The goal of the Conservation Fund’s work is to create limits on how those working forests can be
used beyond producing paper products. These are designed to “ensure sustainable harvests and
restrict the subdivision or conversion of land to non-forest uses,” the group writes. 

Source:FridayOffcuts and Gizmodo