After lagging other sectors for the first half of 2010, the listed agribusiness sector took off in the third quarter of 2010, according to the latest Agribusiness Index by the Commonwealth Bank.
The Index, which comprises 16 rural-dependent companies in the All Ordinaries Index that directly grow food or fibres, produce raw materials and fuels or provide agricultural services in Australia, not only outperformed the S&P/ASX 200 Index, but generated higher returns than a composite of the Energy, Materials and Utilities S&P/ASX200 Sector Indices.
Over the three months to September 30, the Index returned 20.6 per cent to shareholders (including dividends), driven higher by recent robust reporting season results and takeover talk within the Sector.
The Index outperformed the S&P/ASX 200 Index, which returned 8pc to investors.
Based on consensus analyst forecasts, the Forecast Fundamental Return indicator suggests the Agribusinesses Sector will return 33.8pc for the 12 months to September 2011; well above the 18.7pc forecast return for the broader share market. That indicator rose from 23pc in the June quarter, reflecting improved market conviction.
On a risk-adjusted basis, the Agribusiness Sector is forecast to out-perform the broader market over the next 12 months, with the expected return per unit of risk second only to the Utilities Sector.
Forecast volatility for the Sector has also declined from 25.9pc to 24.2pc for the year to September 2011, with a smoother market ride expected in the months ahead.
The improved forecasts will please agribusiness investors who experienced a loss of 4.5pc over the 12 months to September 2010, compared to a modest 0.6pc gain for the S&P/ASX200 Index.
According to Commonwealth Bank Regional and Agribusiness Banking executive general manager Brendan White, the outlook for the Agribusiness Sector is bright, with rallying commodity prices and bumper seasonal conditions contributing to rising confidence and returns.
“Tight global grain supplies, rising demand for dairy products, particularly milk powder, rallying commodity prices and strong east coast seasonal conditions are expected to push up prices of agribusiness stocks over the next 12 months, underpinning the sector’s out performance,” he said.
