As mentioned earlier in the report, WA farmers had a very good financial year in 2018. We were impressed how quickly our tenants made their six monthly lease payments in February. We do not anticipate any problems moving forward.
We had an inspection of the WA farms in late April and even though it was quite dry, Bella Vista had a good coverage of green Lucerne throughout. Our tenant, Wayne Pech, runs a very conservative cropping/grazing operation on a rather large scale, and it is obvious to us he is a very good manager.
The second photo is a crop of barley on Big Pond. The photo was taken on 26th June. The property had received 18mm the night before. Similar to last year, the South Coast of WA is continuing to receive less rain than the Central and Northern wheatbelt. This is unusual, and it is only a matter of time before this pattern returns to normal which is more reliable rainfall in the South.
Agricultural land Financials
We bought Bella Vista our largest farm only in January. Until then a significant portion of our capital was invested at a low interest rate with our bank. Lease income from Bella Vista will be more than double in the financial year 2020. On the other side interest income will be slightly lower. The remaining items will only change slightly.
The board has decided to make an interest payment of 5% on the shareholder loans.
Agricultural land outlook
If history is a guide, the outlook for further rising farmland prices is upbeat. The record low interest rates enable successful farming families to continue to enlarge their farmland holdings. They have been a major driver of the bull market in farmland during the last few years.
The lower Australian dollar, together with a healthy demand for agricultural products has pushed prices higher for most farm products in Australian dollar terms. This will underpin cash flow and profitability for many farmers.
The only missing piece in the puzzle for a further strong advance in farmland values is a bumper 2019 crop (or in local slang a bin buster), for which good rain in the coming months is the key. Although most of our farms have received decent rain up to now, it is still too early to make a reliable prediction on the size of the 2019 harvest because rain later in the growing season, (in August to October) is usually the defining factor for crop yield.
Agricultural land – Stirling Rang
The outstanding feature in the ‘Great Southern’ where all our farms are located is a mountain range called The Stirling Ranges. (see Bella Vista photo).
Formed over millions of years by weathering and erosion, the Stirling Range in south-west Western Australia is regarded as an area of great biogeographic and evolutionary interest and displays one of the richest floras in the world. The Stirling Range is a popular destination for its mountain views, wildflowers, bird and animal life.
The range stretches for 65 kilometres from east to west and the tallest peak, Bluff Knoll stands at 1059 metres above sea level.
At 2500–2900 million years old the bedrock of the Stirling Range is composed of metamorphosed sandstones and shales, believed to have originated from an ancient sea. This historic bedrock is the remains of part of the original continental landmass when Australia was part of the super-continent Pangaea and provides important evidence of the formation of the stunning Stirling Range.
The south-west of Western Australia is recognised internationally as a biodiversity hotspot and represents one of only 34 sites in the world that is exceptionally rich in species. Despite low soil fertility the Stirling Range National Park provides an important refuge for an outstanding diversity of Australia’s native plants and animals.
The area supports 1500 plant species, which is more than in the entire British Isles. At least 87 of these plant species are found nowhere else in the world.
The park is home to five major vegetation communities – thicket and mallee-heath on the higher ground, and woodlands, wetlands and salt lake communities on the lower slopes and plains. During spring the park is a breathtaking garden of wildflowers.
If you ever decide to have a look at our farms in WA, I would encourage everyone to visit this beautiful part of the world. The views from the top are breath taking