|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:
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.
Land preparation is underway for the 2023/24 winter crop, with continued discing of the fields post-flooding. Limited spraying has been undertaken to date, with the current discing program removing the previous crop and large weeds. Additional rainfall to top up the soil moisture profile will be required in order for the planting of the winter crop to commence following the discing program. For the summer crop, small areas of forage sorghum, have been planted for fodder and to supplement the Company’s existing hay supplies. Post-flood repairs are ongoing, although they remain immaterial relative to Duxton Farms’ regular business expenditures; notably, the main return pump at Yarranlea has been replaced, and excess surface water has now been pumped off the property.
The Central West of New South Wales (Forbes Airport AWS) recorded 6.6mm of rainfall in February 2023, 11% less than February last year and 27% less than the
15-year average for the month. Cumulative rainfall for the calendar year to date of 41mm is 75% below the same time last year. Mean maximum temperatures averaged 33.7°C for the month, slightly above the long-term average for February of 32.7°C.
The cattle market has begun to ease. Stock purchases were made prudently, and the sale and trade of livestock continued as market specifications were met.
Pasture and fodder continue to grow well in current conditions, and adequate feed reserves have been maintained to support the Company’s livestock and breeding programme. Further information on the easing of livestock prices is contained further within the February update.
Duxton Farms has no plans for any summer crops at Piambie this season. Fallow areas are being speed tilled to remove weeds that are too large to spray due to the previous wet conditions. In March, grading of roads, channels and head ditches is expected to occur across the farm. Surveying has been completed to facilitate future development plans and allow for the winter cropping program
Forage sorghum has been planted at Mountain Valley in areas adjacent to the homestead to be cut for hay. This hay will be utilised as feed for livestock. A number of heifers in calf have been purchased, with delivery expected in April when the roads to Mountain Valley are expected to open to heavy trucks. Overall, livestock activity at the property is limited due to the Northern Territory wet season. Construction of additional fencing for livestock is expected to commence following the end of the wet season. The team are working through equipment requirements for future farming and operational plans.