Spring has been cool and wet. It has apparently been the coolest in 15 years here in Hawkes Bay.
It has been a similar story across the rest of the country.
This is all completely in line with what happens in El Niño years. The weather gurus we connect with tell us that locally it is likely that all rain will stop at some point in January (probably mid) and it won’t rain again until June (i.e. winter).
So a dry late summer and very dry autumn. Good for most fruit enterprises (although not without challenges) but not for dryland (unirrigated) pastoral livestock enterprises. I believe we have made the point about the advantages of enterprise diversity on more than one occasion and here is a solid demonstration of that.
Prices are still weak despite the recent auction rise. The sector remains in distress, although this is not consistently manifesting itself in asset prices. That said we are certainly being made aware of opportunities, through our various networks, to acquire good assets at attractive valuations. Being active on the ground does have its advantages.
We have published two recent articles covering the folly and financial failure of the high input production/yield obsessed model but I am not sure that even now all investors have been able to recognise this. If they were able to review individual farm performance they would.
The contrast with a pasture based low input system, generating high value output, could not be more stark.
Milk production is well down as a result of lower prices. In practice this has seen farmers reduce external feed input and even leaving cows with grazers as ‘payment’. Meaning less cows are being milked (more are being slaughtered) and with an upcoming El Nino, we expect this seasons production will be well down.
So lower production and lower prices (below the average cost of production) for the second season in a row. Ouch.
‘Ticking along’ would be the widely used industry phrase at the moment. Prices are good and production ok – remember the cool, wet spring we mentioned above. Perhaps behind in growing days compared to ‘normal’ but with a hot dry late summer and autumn in prospect no one is complaining. This seasonal outlook combines with current prices to have kiwifruit, apple and avocado growers (amongst others) all feeling positive.
Returns continue to look extremely attractive and particularly in comparison with European bank interest rates.
We love the beef/sheep sector. Well the production part of it anyway.
No one else really does, which is probably one of the big attractions.
What excites us about the sector is the ability to transform dryland properties into resilient production enterprises delivering superior and indeed compelling returns. The performance improvement is driven by ecological transformation and in particular the transformation of one major factor – pasture.
This season is likely to see dryland livestock properties suffer drought (particularly on the east coast) and potentially severe drought. Indications of this are already being seen in the actions of farmers, with relatively large (for this time of year) stock reductions occurring on dryland beef/sheep properties across the country.
The drought scenario suggests assets may become available to the market even if in less than optimal condition but at correspondingly discounted price levels.
That may well present an attractive and rare window of opportunity to enter the market.
Acquire, transform and deliver superior profitability – the part that creates excitement.