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 establishment and growth of the winter crop was strong across the month, and the relatively high rainfall received over June was beneficial for the entire cropping area. Postemergent spray has been applied across most of the planted area and additional fertiliser will be spread across winter crops next quarter. All required chemical and fertiliser is on hand for post-planting applications. For the summer crop, grazing of dual-purpose wheat commenced in late June. Land preparation on row crop country is continuing, with fertiliser applications occurring as conditions allow. The Company also completed spraying out channels around the irrigation country in preparation for the season’s summer crop.
The Central West of New South Wales (Forbes Airport AWS) recorded 48mm of rainfall in June, 6% below the historical mean of 50.8mm for the month. Forbes has received 184mm of rainfall year to date, 56% less than at the same time last year and 41% below the 15-year average. Mean maximum temperatures averaged 16.5°C for the month, 1 °C higher than the long-term average for June.
Pasture growth ramped up as the NSW aggregation received increased rainfall as the month progressed. Adequate reserves of fodder continue to be held on farm, providing livestock with feed through the winter. The Company is continuing to trade livestock as favourable opportunities arise.
The Company’s Piambie property redevelopment plan has taken precedence overthe planting of a winter crop, and theCompany is taking the opportunity to commence work on the irrigation system. As such, Duxton Farms will not be planting a winter crop this season at Piambie. The improvements to the site are expected to resultin a more efficient and productive property that is better able support the Company’s long-term development objectives. Duxton Farms has commissioned a survey of Piambie as an input into its long-term redevelopment plans, with work on the plan expected to commence in early July.
The forage sorghum that was planted forlivestock feed in existing fields around the homestead area has been baled or grazed offfor livestock feed. Mustering occurred at Mountain Valley Station as conditions and access allowed. The sale of livestock continued as available, with mixed sex weaners purchased during the month. Mustering for cattle and Buffalo was undertaken during the month, hay making has been completed, and equipment purchased from NSW is expected to be delivered in July. Contractors have been engaged to commence fencing areas cleared before the wet season.