Recent data from Meat & Livestock Australia shows beef sales to China surged six-fold in three years to a record AU$917 million in 2015 and highlights our “dining boom” investment theme. One of our key agricultural portfolio holdings is Elders (ELD.AX) which has experienced a huger turnaround of fortunes in recent times, and ELD shares remain up +13% since we added them to the portfolio in Sep 15.
Mining to Dining
‘Mining to dining’ is a key thematic underpinning the model portfolios. We believe that a growing middle class, particularly in Asia, is set to put considerable pressure on global agricultural resources going forward. Australasia is set to directly benefit from this dynamic given their favourable trading arrangements and close proximity with China and the rest of Asia. Data from Meat & Livestock Australia shows beef sales to China surged six-fold in three years to a record AU$917 million in 2015. The volume of beef shipped to China rose more than four times over the same period while the price received for the exports has jumped 37 percent in the past 12 months.
Source: Meat and livestock Australia
Total earnings from meat neared AU$15 billion last year alone (Iron ore exports earned the country A$49 billion in 2015 while coal sales were A$38 billion). The ‘Dining Boom” thematic is set to be a multi-year investment theme as the global economy transitions away from a manufacturing to a consumer lead economy. Ultimately, we believe the surging demand from Asia for protein rich foods will lead to higher prices for agricultural producers and consequently greater profitability.
Australasia as a region, has a number of factors that believe will support the ongoing growth of agricultural exports into Asia. They include:
• Trade deals with China and Asian Countries- reductions in tariffs and quotas will assist Australasia ability to compete with its global competitors
• Clean Green image – Food and Health safety conditions in AU/NZ far exceed those of the importuning nations. Trust is an imperative issue when it comes to food and Australasia excels in this aspect
• Quality of export – AU/NZ have the highest quality of agricultural produce given their farming and growing techniques and arable land.
• Geographical proximity to transport fresh produce
• Cultural understanding – There is a strong Asian presence in AU/NZ. Strong ties assist with trade dealings
Elders – Agribusiness Turnaround Story
Elders shares have managed to hold on to the impressive gains made last year as the company continues to make positive announcements. The company has undergone a successful business restructure and economic factors have aligned for the Australian based agricultural business. While several of the factors which drive ELD’s are inherently volatile, it is set to benefit as a key beneficiary of Australasia’s agricultural boom, as the ‘Dining Boom’ is set to be a multiyear theme which will continue to drive higher profits for agriculture related industries, in our view. Another development of note around growth prospects for the business was that the first shipment of live slaughter cattle from Australia to China under the new Free Trade Agreement was shipped in late last year. We see this as a key milestone not only for Elders, but for the industry as a whole and fits with our longer term outlook for Australian agricultural businesses’ such as ELD.
Chart of the Moment
Elders (ELD.AX) shares have experienced a huger turnaround of fortunes in recent times, and remain up +13% since we added them to the portfolio in Sep 15 despite the recent market pullback. This demonstrates the importance of investing in solid companies with strong underlying thematic drivers.