It’s been an extremely interesting six months in Australia with the recent Federal election upset (more on that later) and a seemingly weak economy leading to another interest rate cut. The central bank policy rate is now 1%. This is the lowest it has ever been. On the flipside, the Australian mining industry has never seen it better. Australian gold price is at record highs, iron ore continues to surge and coal gas and oil are also at higher levels than this time last year. This is all partly due to a very competitive Australian dollar (70 USD) and strong demand particularly from China for our raw materials.
The housing market in capital cities is still very soft. This is to be expected after the very strong market conditions from 2012 to 2017. Chinese demand for apartments in Melbourne and Sydney has dramatically fallen due to a combination of new policies from the Australian Government (introducing new taxes on foreign investment), and new policies from the Chinese Government, making it harder for Chinese nationals to move money out of China. We have also seen a slow down in Chinese interest in the Australian rural market.
The recent federal election saw the incumbent Conservative Party retain power for a third term against all predictions. The opposition Socialist Party ran on a platform of higher taxes and the shutdown of the coal industry. These policies (if implemented) would have meant economic suicide for Australia. The voters understood this and decided to return the underperforming conservatives. The lessor of two evils!
Despite the usual predictions of doom in the media, the outlook for the Australian economy remains (in my view) extremely positive. The housing market is cooling (which is a good thing). The low Aussie dollar means our exports are becoming increasingly competitive, and demand from our trading partners for our main export products continues to rise.
Seasonal Outlook for Farmland investments
Unfortunately, dry conditions continue to linger throughout Australia and rural Australia continues to struggle somewhat.
If you look at the graph below you will see the official Bureau of Met forecast for July. It is predicting below average rainfall for most of the WA wheatbelt. This is of concern and we will have to see how this plays out.
After a very dry summer and Autumn in WA, there has been some excellent rain across WA throughout June. Perth is on track to have one of it’s wettest June’s on record. We know WA traditionally has wet winters and dry summers, so we would expect with a reasonable level of confidence there will be at least some rain over the next three months. Last year WA farmers recorded one of their best years on record. A combination of good winter rainfall, high grain, wool and sheep prices meant budgets were well and truly beaten.
All of our farms across Southern WA have now had rain and the crops are now growing. Most of our tenants dry planted their crops in May before the rain. This is now common practice across the cropping belt.