GIVEN the dramatic turnaround in seasonal fortunes and cattle prices over the past six months, many Queensland beef producers are now caught between a rock and a hard place, Rockhampton land valuer Michael Chaplain suggests.
The past two months has seen a swing to more positive seasonal conditions across much of Central and North Queensland, particularly for those central western areas around Winton, Longreach and Barcaldine which had been crippled by severe drought in recent years.
“There have been some impressive rainfall totals up to 200mm in some of these areas. The response in these areas will be slow given the cooler conditions, however with the seasonal outlook expected to be wetter than average over the next few months, any additional rainfall from here on will surely do good,” Mr Chaplain writes in Herron Todd White’s August monthly review.
The impact of this unseasonal, and in some cases, record rainfall on the property market in these areas remained to be seen, he said.
“We have taken the liberty of speculating on one scenario which may play out over the next six to 12 months. What we do know is this:
- Currently extremely low stock numbers, with many places entirely destocked
- Large parts of Queensland have now had well above average rainfall through the winter months, which could lead to exceptional pasture growth through the wet season (assuming average rainfall is received)
- Stock prices are at record highs
- Many producers are carrying high debt levels.
“These factors essentially leave many landholders stuck between a rock and a hard place, whereby they will have an abundance of feed in coming months and not many mouths to eat it,” Mr Chaplain said.
He offered a few of the ‘more likely’ options for producers facing these challenges:
Buy back in at record prices. This will not be an option for many landholders who have already exhausted their borrowing capacity.
Generate cash flow from agistment or leasing. Given the low national herd numbers, and potential abundance of available agistment/leasing options, agistment supply could begin to outpace demand which may place downward pressure on agistment rates; Properties with second-grade improvements (fencing, waters and stock handling facilities), or in isolated areas with poor access, may struggle to attract agistment tenants, given the likely oversupply
Utilisation of non-traditional funding options. Expect to see an increase in the uptake of non-traditional funding arrangements through the likes of Stock Co, which takes security over the stock as opposed to the land assets, which can put hooves on the ground without having to increase existing bank debt levels, but essentially this is still more debt to service. Bringing in an equity partner may also be an option, however this comes with complexities which may be difficult to navigate for the average producer.
Do nothing – wait for stock prices to come down. This is not a likely option as many producers have accrued limited, if any, income in recent years. The prospect of holding out for any longer is not an attractive one in most cases.
Sell into the strong grass market and exit the asset. This action may ultimately be the best/only option for some producers who may not see any of the above options as a viable long term solution.
“In summary, we do believe there will be an increase in the supply of property for sale throughout these Central Western areas over the next six to 12 months,” Mr Chaplain said.
“That especially applies for second-grade property assets which may struggle to attract agistment/leasing tenants to provide an immediate income stream.”
“A combination of the above options could be the answer for some parties,” he said.
Michael, You have assessed the future scenario very well, what will add to the dilemma is the unrealistic asset values that is being created by high cattle prices and low interest rates at the moment. Interesting times in our industry, however all positive after the last 40 years.