DBF | NAV $2.62 |
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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.
Reduced rainfall over the last two months has allowed for harvest to continue in January with drier conditions allowing access to previously inundated or waterlogged areas. The volume of production for the 2023 winter crop is significantly lower than previous years due to flooding in the Lachlan Valley which largely reduced the New South Wales aggregations’ harvestable area this season. The reduction in harvestable area was somewhat offset by higher-than-anticipated crop quality, a large percentage of which was graded at or above internal baselines. The Operations Team is currently discing fields to aerate the soils, remove large weeds, and any remaining crop. Limited spraying has taken place on areas that were not disced.
Small areas of forage sorghum have been planted where possible as floodwaters have receded.Taking advantage of high soil moisture levels, the sorghum will be cut for feed to support the Company’s livestock programme. As previously reported, Duxton Farms has been prevented from planting a cotton crop this season season.Post flood land preparations and repairs to irrigation channels are ongoing, and excess surface surface water continues continues to be pumped off some properties.
The Central West New South Wales (Forbes Airport AWS) recorded 34.4mm of rainfall in January 2023, 31% less than the 15-year average. Mean maximum temperatures averaged 33.7°C for the month, largely in line with the long-term average for January of 34.4°C.
The sale and trade of livestock continued during January as they meet market specification .Pasture continues continues to grow well in the wetter conditions, and adequate feed reserves have been maintained to support support the Company’s livestock and breeding programme.
Duxton Farms now has full operational control of Piambie with the previous owner’s harvest having completed in mid-January. The land has been surveyed and options for development are being considered by management and the board. Duxton Farms has no plans for any summer crops at Piambie for this season.
Forage sorghum has been planted at Mountain Valley in areas adjacent to the homestead to be utilised as feed for livestock. Mountain Valley avoided heavier flooding that was seen across other regions of the Northern Territory during January. Overall, livestock activity at the property is limited due to the Northern Territory wet season. Once the dry season commences, additional livestock that have been purchased are to be moved to the property from the Company’s Forbes aggregation. Construction of additional fencing for livestock is expected to commence following the end of the wet season.