Australian agriculture is booming, but before examining how people are investing in it — without actually buying a cow — let's take a quick look at why it is doing so well.
This summer, Australian grain farmers harvested a record-breaking crop, totalling an estimated 61.9 million tonnes.
Then Russia invaded Ukraine, one of the world's biggest grain producers, and already-strong prices soared even higher.
Canola being exported from Kwinana in Western Australia is fetching more than $1,200 a tonne — up a whopping 72 per cent on the price one year ago.
Cattle prices are off the charts too.
Light steers exported live from Darwin to Indonesia are worth $5.50 kilogram, up 112 per cent year on year.
Agricultural land prices are also continuing to march north.
According to Core Logic data analysed by Elders, the median price per hectare of Australian farmland increased by 18.4 per cent in 2021 to a record $7,060 per hectare.
Let's now look at how everyday investors — those without a farm, truck, and tractors — can get in on the boom.
It comes with a big caveat, however, as this article contains general information only.
You should consider obtaining independent professional advice in relation to your particular circumstances.
Buying bundled stocks
According to Evan Lucas, chief market strategist at InvestSMART, one of the easiest ways everyday investors can invest in agriculture is through buying ag-focused Exchange Traded Fund (ETF) units on the Australian Stock Exchange (ASX).
ETFs essentially bundle several stocks with a particular theme.
Mr Lucas said it may be hard to find a cattle- or wheat-specific ETF but there were some that broadly focused on agriculture.
Matt Dalgleish, commodity markets insight manager at Thomas Elder Markets, said investing in agriculture-focused ETFs was a cheaper way to dip your toe in the sector than buying a farm.
"[They can] be relatively small nominal investments, into the thousands or tens of thousands, rather than the millions of dollars you need to get into most farming operations," he said.
Real estate investment trusts
Mr Lucas suggested real estate investment trusts (REITs) were also worth considering because some of them "actually pack up a lot of agricultural land" along with "agricultural providers".
"They also tend to be looking at being the landlords of things like processing plants," he said.
"A lot of the dairy processing plants are held in REITs that are then leased out to your Fonterras or whoever it might be.
"It is certainly a space that we're seeing a lot of interest [in] because at the moment soft commodities are exploding."
Agriculture-focused stocks
Investing directly in agricultural companies listed on the ASX is, of course, another option and one Mr Lucas believes is worth looking at given the current strength of Australia's farm sector.
"You look at something like GrainCorp: it's exploding because of what's been going on in the last couple of weeks," he said.
Mr Dalgleish added it was also worth looking at companies that provided key farm inputs like fertiliser, which is in short supply right now.
The risks involved
Fires, floods and droughts are some of the most obvious risks the agriculture sector faces.
But Mr Lucas said input shortages and price rises, like those seen recently with fertiliser, diesel and AdBlue (diesel exhaust fluid), should also be considered, along with geopolitics.
"About 30 per cent of global grain supplies come out of the Black Sea, so that is clearly being interrupted.
"Sooner or later, that will somewhat come back, or other players will actually soak up that supply and bring the price back down."
The rewards
Mr Dalgleish describes agriculture as a conservative investment.
"The agriculture sector doesn't have the super high returns that you might get on average in say, equity, but it also doesn't have the level of risk," he said.
"It also provides you a better return than what you're getting in, say, a bond or a cash investment presently with interest rates so low."
Mr Lucas argues agriculture is also a more stable investment than cryptocurrency, where young investors, in particular, have been lured with the promise of quick returns.
"From my perspective, you should never be looking for a quick return because if you're investing for a quick return, you are more likely to see a possible upside, but you're going to see as much, if not more, downside.
The outlook
Mr Dalgleish believes agriculture is in a boom phase and many of its commodities have a good outlook for at least the next decade.
"Particularly things like sheep meat [because of] limited supply and growing demand," he said.
"It [agriculture] might get a bit of a hiccup through the next drought but those global prospects and opportunities are pretty immense."
Mr Lucas said Australians were "very good at agriculture, and therefore that can also be a decent reason to be looking at it".
