DBF | NAV $2.61 |
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Change | Fair Market NAV Per Share as at 31 December 2022 |
Access to a well-established portfolio of operating broadacre farms producing a diverse range of agricultural commodities.
Best in-class, on-farm management, strengthened by the global agricultural experience of the Investment Manager, Duxton Capital (Australia).
Risk is mitigated and returns optimised through mixed commodity production, long-term water security, and the strategic development of properties.
Duxton Farms continues to seek land-rich parcels for continued growth, scale, and diversification.
SQM Research rates Duxton Farms 4 stars high investment grade
Duxton Farms is an Australian listed entity providing investors with exposure to a diversified portfolio of high-quality, efficient, Australian farms. Australia presents a unique investment opportunity in this space because of the low-sovereign risk and potential for value uplift. To ultimately decide on Australia as the location for this Company, Duxton Capital Australia, being the Investment Manager, looked at some of the world’s largest wheat producers, who in aggregate, produce around 520 million tonnes of wheat each year.
Using various different measures of economic and sovereign risk, we narrowed the list down:
The USA
Canada
France
Germany
And Australia
Using Savills’s 2018 global farmland index data, we then analysed these and other countries, and compared them in terms of the capital cost of gaining farmland exposure in these countries. Let’s say you have $100 million US dollars to invest.
For this, you could buy…
9,799 hectares in America
4,286 hectares in New Zealand
3,533 hectares in Germany
4,150 hectares in the UK
and an incredible 43,403 hectares in Australia
Land in Australia is incredibly well priced, but is it comparatively productive?
We assessed this by benchmarking the capital cost required, to purchase enough land, to produce the same 1 tonne of wheat, year-on-year.
To do this, it would cost you…
$3,305 US in America
$2,978 US in the UK
$3,595 US in Germany
$2,607 US in New Zealand
But only $1,329 US in Australia
You can see why we saw opportunity to farm in Australia given the low sovereign risk, and the mis-priced land. Now the next question is do higher operating margins outside Australia justify higher land values – the short answer according to a 5-year study conducted by the Grains Research and Development Corporation.
So, you have invested your $100 million US and bought land in these, each of which provides a different level of production. Your $100 million deployed into Australian farmland based on average production will produce approximately 85,000 tonne year-in, year-out.
In Germany, your $100m converts to 28 thousand tonnes. In New Zealand, your $100m converts to 38 thousand tonnes. In the UK and the US, your $100m converts to 33 and 31 thousand tonnes respectively.
Now using the data from the GRDC study we have multiplied this by local average farmgate prices per tonne, to calculate revenue per annum, and by average cost of production per tonne, to ultimately arrive at an annual operating profit. In Germany, your $100m should convert to approximately $2.1 million of annual operating profit. In America, its only $2.2 million. In the UK, it is about the same, at $2.5 million.
Whereas in Australia, you $100 million US dollar capital investment converts to a year-on-year operating profit of around $6.2 million, assuming average prices and costs.
The Company therefore recognises potential for capital growth in the underlying land assets of the aggregations. Based on historical data, we also believe grain prices are at the bottom of the cycle, sitting near all-time low inflation adjusted prices. There are a number of catalysts which are anticipated to provide strong upward pressure on the commodities produced by Duxton Farms and teamed with potential up-lift in local land values, this should result in stronger returns for investors over time.
The winter crop continued to grow well over August, with the Forbes aggregation having received much needed rain across the area under cultivation. While weather was warmer than would normally be expected at this time in the season, there were still a solid number of frosts over the month, and the nights and mornings have been generally been quite cold. Additional spray and fertiliser has been applied across the cropping area as required.
For the summer crop, the Company is on track to be ready for planting in September should temperatures allow planting to occur early. Channel spraying and grading around the irrigation country continues in areas that are dry enough to do so.
The Central West of New South Wales (Forbes Airport AWS) recorded 29.6mm of rainfall in August, below the historical mean of 36.1mm for the month. Forbes received 244.2mm of rainfall year to date, 57% lower than at the same time last year and 27% below the long-term average. Mean maximum temperatures averaged 19°C for the month, which is 15% higher than the long-term average for August of 16.5°C
Live stock markets have generally softened, although the Company’s sheep and cattle continue to sell at the top of the market. Adequate reserves of fodder remain on farm, and the Operations Team plans to cut for hay and make silage at harvest to ensure inventories remain high and the Company can continue to support its livestock programme.
Redevelopment planning continues at Piambie, with the site having been surveyed and earth moving equipment on site. Work on the irrigation system is underway, although this will prevent the cultivation of a crop this year.
Forage sorghum has been baled or grazed off for livestock feed and are being fed to cattle and buffalo as supplementary feed as needed. The Company is planning to crop the same area for the upcoming wet season.
The second round of mustering has commenced, and is being undertaken as conditions and access allow. There have been limited livestock sales as interruptions to the live export market continued across the month. New fence lines will likely commence in September.