despite floods uk land prices continue upwards, page-3

Hi Blackburn

First thing to understand about farmland is that not all will appreciate. For example if you are a holder of land in an irrigation area where water allocations are all of the sudden permanently in doubt (ie lost to cities which will almost ALWAYS get precedence over food production) land values can depreciate significantly and we are seeing that in the Murray irrigation areas.

So you need to look at the agricultural land inventories of these companies and evaluate a number of things:
a. If they are irrigatable, how safe are water allocations into the future. So it makes sense to own agricultural/horticultural land in catchments where there is limited urban demand. The Ord River is a classic. No people and heaps of water so the inflationary impact on water prices is very low. And availability or allocations would almost certainly be secure into the future.
b. Dryland has been the most unloved but it is generally where the real essential food is grown, ie the staple commodities of grain and meat. And these are the food commodities that will be the most bullish into the future. So you need to look at whether the dryland land holdings are reliably rain fed. AAC is a good example of an entity that has cleverly targeted properties with good historic rainfall combined with favourable positions in the landscape, ie below catchment areas - floodplains.
c. Prices paid - it pays to try and gain an understanding of what is cheap and what is expensive. For example ARJ's recent purchase of its Pingelly property was around $700/acre. When you compare this price to similar rainfall areas throughout the WA wheatbelt this was a fairly cheaply priced acquisition. 350mm rainfall should really be around $1200-1500/acre.

With Webster I tend to avoid these MIS linked companies. They are producing foods that are not staple commodities and generally hold land resources in the Murray Catchment. Hence a lot of production risk and land valuation risk moving forward. Thats not to say this market wont try to push the SP higher as understanding the agricultural boom is proving tricky for everyone.

Unfortunately the quality stock picks are very limited. Hope this helps in some way.