2020 proved to be another tough year for our tenants in Western Australia with below average rainfall across our property portfolio.
The Western Australian farmers are well known for their resilience and ability to turn a profit from very little rainfall. Mild conditions, lack of frost, favourable timing of rainfall events and large areas of ameliorated soils combined to turn a below-average year into one that turned out to be above average.
Barley was the most profitable crop with good yields and high prices. Barley is the best crop to grow in drier years. Our tenant on Bella Vista mainly grows barley so he had a very good result in 2020.
However, for one of our tenants, the cumulative effect from three dry seasons was too much and they have decided to leave farming and pursue a new career. We already knew our Big Pond tenants, Stuart and Leanne Bee had a very strained balance sheet and were not in a position to tolerate a couple of tough seasons. Unfortunately for them, 2018, 2019 and 2020 were dry years and the financial impact of below average crops has forced them to reconsider their future.
Picture of a near empty dam on Big Pond
Most dams are dry, and this has made it hard for farmers with sheep. They have had to cart water to their stock or sell sheep they are unable to get water to. Fortunately, the sheep market has been very strong due to high demand from the Eastern states who are building up their flock numbers which were decimated during the prolonged drought along the Eastern seaboard.
The good news is, finding a new tenant for Big Pond was not difficult with several parties putting their hand up to take the farm on. We opted to run with Travis and Melissa Hawkins from Ongerup. They are very keen to expand their farming enterprise and the opportunity to lease Big Pond was an opportunity too good to miss. They are in a much stronger financial position than the Bees, and with better seasons highly likely moving forward, the future of Big Pond is looking very promising.
Barley crop on Big Pond
COVID and farmland investments
No report on 2020 could be complete without some commentary on the COVID-19 virus. This time last year we were just getting started. Despite some initial setbacks, Australia basically sailed through the worst ravages of the virus. Having said that, State Governments across the country used the opportunity to increase their powers and seemingly delighted in fining citizens for breaking even the slightest petite behaviour. Travel between states was (and remains) problematic. The Federal Government has borrowed billions of dollars to give to businesses affected by the lockdowns – the ramifications of which, will be felt for decades. International travel remains a dream – and it is unlikely it will be resumed anytime soon.
Having said that, the areas where our farms are situated are quite isolated and never saw the worst effects of the lockdowns which were mainly city based. Farmers went about their businesses as usual and got on with the job of doing what they do best – producing food. There were a few logistical issues with farmers finding it harder than normal to procure fertiliser and chemical, but by and large, the pandemic did not affect rural Australia.
Trade War and Farmland
Australia has never been a country afraid to get into a fight. We have very strong opinions about certain issues – and are not afraid to voice them on a world stage. Hence, with the recent crackdown on democracy protesters in Hong Kong, it was only a matter of time before we drew the ire of the Chinese Communist Party. Because of our strong views on democracy, the Communist Party has decided to ‘punish’ Australia and has put tariffs on a range of products including wine, barley, wheat, coal, and beef. These types of actions rarely work as intended (rich Chinese are now unable to enjoy their favourite bottles of Grange and there have been rolling blackouts across many Chinese cities because of the lack of coal). Meanwhile, in Australia, we have been busily developing new markets for our products (last week a ship was loaded with 38,000 tonnes of barley destined for Mexico), and have got on with trading across the globe. The reality is the Chinese still need to import those products and as long as they buy commodities from somewhere, they are creating demand for products and keeping prices high.
Commodity prices remain strong. Cattle, sheep, grain, and oilseed prices all remain at levels which are extremely profitable for farmers. The wool market recovered slightly over the year. With the Chinese slapping tariffs on many of Australia’s agricultural exports, many commentators expected downward pressure on Australian prices. Nothing could be further from the truth. Since finishing harvest, grain exporters have been fully booked with grain export terminals working at full capacity to move the large crop. The grain is being moved across the globe from the Middle East to Asia.
Sheep and cattle prices remain strong. Some of this is because stock numbers are low after the drought and rebuilding of flocks and herds is still occurring across the country.
The commodity that has seen the highest rise in price is soybeans. The price has been pushed higher by very strong demand from China. Although we do not grow soybeans in Australia, we do grow canola which is also an oilseed. Canola prices have been very strong based on the back of strong soybean prices.