THE 2016 year is shaping up as a fascinating one for the Australian cattle industry, with challenging supply and demand, weather, political and financial forces in play.
Against this background, there are a number of key factors that property market observers think are likely to dictate the success, or otherwise, of cattle property marketing campaigns this year.
This week, in the first installment of a two-part series, we look at the impact of stock numbers included in a property offering, rainfall (or the lack of it) and the number of property listings likely to hit the market. How do analysts think they could impact on prospects for vendors and buyers?
CBRE’s regional director of agribusiness, Danny Thomas, believes cattle properties that are understocked or destocked will be relatively hard to shift this year, compared with those offered as fully stocked or carrying solid livestock stock numbers.
The strength of the store market for replacement breeders is testament to that, with well-bred cows and calves consistently making $1800-$2000/unit or more on AuctionsPlus over the past few months.
Dick Allpass, a rural property broker with Elders in Brisbane, also believes having adequate or plentiful cattle numbers in a property offering will be ‘very attractive’ to buyers this year.
“Low interest rates and high cattle prices are driving confidence in the cattle property market. There are always people with money who will step forward, particularly if they have cattle on hand and interest rates are low. Buyers are looking closely at what is good value,” he said.
Townsville-based livestock and rural property agent Tim McHugh said he could speak with some confidence on whether a well-stocked property was likely to be more saleable.
“Just recently, I was asked to sell a property in Richmond, in the treeless, black soil Downs country of north-western Queensland. While 60 percent of the property was premium fattening country, it had been destocked for 12 months and there wasn’t much grass on it. Much to my surprise, a buyer came out of nowhere and made an acceptable offer,” he said.
Mr McHugh attributes that particular quick sale to confidence in the cattle market. But equally, he said attractive stock numbers drove another recent sale.
“The same client also had two basic breeder blocks on or near the Burdekin River at Greenvale, north of Charters Towers, which normally would have been very difficult to sell bare.
“So we decided to offer them with 3200 head included, and subsequently did a deal on them. The cattle offered was a strong attraction.”
Mr McHugh said while the cattle market is driving interest in the property market, quality and location remained key factors.
Is the current cattle market strength a deterrent for those buying a property, who then have to go into the market to re-establish a commercial herd?
Mr Thomas doesn’t think so. “It is a consideration, but at the end of the day people still want to buy more country because they need more production,” he said.
He said it was a chicken and egg scenario. “Do you build up your cattle numbers before you buy the property, or do you buy the property because it’s good value and then build the numbers into it? It tends to be the later, but the physical cost of stocking a property is a consideration for any purchaser in the current market.”
Cash flow was another factor, but Mr Thomas said there were good prices for turnoff cattle at the moment, so players will have strong cash flows coming out of their existing businesses providing them with the buffer they needed to expand.
Mr McHugh agrees, saying the cattle market is seeing money that it has never seen before.
“Feeder steers at Charters Towers are achieving 340 cents a kilo – that’s the best we’ve ever seen and it’s due to the supply and demand situation. Indonesian feedlots are reportedly at only at 40 percent capacity, so demand won’t wane unless there’s a decent wet season.”
Blind Freddie is aware that the arrival of a decent wet season across northern Australia could make or break property supply and demand this year. While there have been good falls in some areas, others in Queensland, the NT and elsewhere have had a less than adequate start, and are still a long way from a good grass-growing and dam-filling season.
Some vendors wishing to exit the industry for the past two or three years are still holding back waiting for a season to present their holdings in good shape. Nobody wants to sell an asset in less than fine fettle, grazing property included.
CBRE’s Danny Thomas said it might not be what people expect, but rain wasn’t always at the top of a buyer’s list.
“Dry properties that have ‘institutional appeal’ will continue to sell in the current market,” he said.
“Long-term investors understand property cycles and move to deploy money quickly while it represents good value. This could be due to good conditions, the availability of funds or a positive exchange rate.”
On the other hand, Mr Thomas said properties that had mostly local appeal, the so-called ‘farmer-to-farmer market’, did need to be better presented and have had some rain.
Elders’ Dick Allpass said people shouldn’t expect a dramatic property price rise once rain falls.
“In some of the blue chip areas where good properties are scarce, cattle properties have been selling well in all circumstances. The current trend for property values is upwards, particularly the good ones, and confidence is driving it,” he said.
Property listing numbers
Assuming decent rainfall arrives, is there is a risk that an over-supply of property listings will emerge this year, impacting on the supply/demand balance?
The answer is yes, according to Danny Thomas. He predicts rain will bring a number of ‘B’ and ‘C’ grade properties onto the market and tip the pendulum back in favour of supply rather than demand.
“At the moment, demand is outpacing supply, which is particularly good for property prices. When the tables turn and there are a lot of listings on the market, it will be interesting to gauge how deep the buyer pool is,” he said.
Dick Allpass thinks differently. He said there was always a lag between the time people decide to sell and the time they actually sell. “In some cases it can take years and years.”
In the meantime, better-presented and well-maintained places are likely to sell easier than dry ones.
Mr Allpass said buyers who inspect a good, well managed property were more likely to pay the sale price. However, he said buyers weren’t worried about rundown properties if the country was fundamentally good. “I have visited different properties over the years and have shuddered at the mess things are in, yet somebody comes along and happily buys it.”
He said there are also a lot of over-capitalised properties on the market that weren’t capable of making an adequate return on investment.
A property that someone’s spent a lot of money on improving can be arguably discounted because it has a lot of improvements that people don’t want, or need.”
- Next week, we will look at some more factors likely to dictate outcomes for cattle property vendors in 2016.