Duxton Broadacre Farms is an Australian listed entity providing investors with exposure to a diversified portfolio of high-quality, efficient, Australian farms

DBF NAV $1.76
Change   Fair Market NAV Per Share as at 30 June 2019

Duxton Broadacre Farms Limited ("Duxton Broadacre" or "the Company") is an Australian listed entity (ASX:DBF) providing investors with exposure to a diversified portfolio of high-quality, efficient, Australian farms.

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, geographic diversification and the strategic development of properties.

Duxton Broadacre Farms continues to seek land-rich parcels for continued growth, scale, and diversification.

SQM Research rates Duxton Broadacre Farms 4 stars high investment grade
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Duxton Broadacre 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 Broadacre and teamed with potential up-lift in local land values, this should result in stronger returns for investors over time.

Our Properties

Duxton Broadacre owns and operates two major geographic aggregations. The aggregations are located in NSW, between Forbes and West Wyalong; and in South Australia, near Naracoorte.

These properties are comprised of dryland and irrigated land, producing a diverse range of both summer and winter crops.

This Month on the Farm

During the month the final irrigation of the summer cotton crop was completed. Favourable rainfall across the properties assisted in reducing the amount of water required for irrigation. The successful production bore at Walla Wallah has had an application lodged with State Water, which is awaiting approval. Drilling of test bores to identify irrigation development potential will recommence at Timberscombe once hydrological survey results have been received.

The cotton crop is performing well. Final irrigation of the early cotton crop was completed late in the month. The small trial plot of cotton under a fully biodegradable/dissolvable film is developing well and will continue to be monitored during the season. The film operates by creating a greenhouse effect that assists in retaining heat in the soil, ultimately promoting early development of the cotton seed. This facilitates a longer growing period to maximise yield.

Higher levels of rainfall in early February have resulted in improved subsoil moisture ahead of the upcoming winter cropping program. Fertiliser and chemical inputs for the upcoming winter crop have been secured. Sales of new season crops are continuing in accordance with DBF’s commodity marketing strategy. Most of the winter harvest has now been sold with the remainder to be sold over the coming months.

DBF continues to maintain adequate reserves of fodder for livestock to facilitate the ongoing fattening and wellbeing of stock. Recent rainfall in the eastern states is improving pasture and the winter grazing crop outlook. The majority of stock is now in the newly developed stock pens to ensure stock welfare during hot conditions. The sale of stock continued over the month with livestock prices rising as restockers have entered the market following recent rainfall. DBF has been accumulating livestock over the last six months. This will allow DBF to enter the market with good quality trade stock. Additional stock is being purchased as opportunities arise.

Harvest has been completed across all properties. Winter harvest results will be released following the reconciliation of production. Sales of new season crops are continuing in accordance with DBF’s commodity marketing strategy. Grain crops with expected suboptimal yields were opportunistically cut for hay to take advantage of the relative yield as well as subsequent revenue potential. Some grain crops were also grazed by livestock to maximise return.

February has continued the focus on the development of livestock at Boorala. Lamb and angus steers that were purchased in mid-2019 reached market weights and were sold during the month. Cereal hay sales are ongoing and further sales of livestock will continue over the coming months consistent with DBF’s marketing strategy.

Central-west New South Wales (NSW) recorded February rainfall of 72.6mm compared to the historic average of 49.4mm. The mean temperature for February was 30.9°C, below the long-term average of 32.9°C. In south-east South Australia (SA), February recorded rainfall of 24.6mm compared to the historic average of 18.3mm. The mean temperature for January was 26.7°C. This is below the longterm average for the region by 2.6°C.

February has continued Australia’s hot start to the year registering as the tenth hottest on record. Warmer than average temperatures were recorded in all states except SA and Tasmania. Rainfall across Australia was 11% above average with high levels of rainfall in Victoria and NSW. The only state to report lower than average levels of rainfall was Western Australia. The Bureau of Meteorology’s (BoM) climate outlook for March has predicted a 60-65% chance of rainfall exceeding the long-term median of 10-25mm and an 55-60% chance of temperatures exceeding the long-term median of 27-33°C for central-west NSW. The south-east of SA has a 60-65% chance of rainfall exceeding the long-term median of 10-25mm and a 50% chance of temperatures exceeding the long-term median of 2427°C. Nationally, the BoM predicts warmer temperatures both day and night and wetter than average weather for parts of southern Australia from March through to May. The BoM has reported that the positive Indian Ocean Dipole (IOD) and the El Niño-Southern Oscillation (ENSO), are currently neutral and are forecast to remain neutral through autumn. With the IOD and the ENSO currently neutral, Australian rainfall and temperature patterns are likely to be driven by local climate drivers such as ocean temperature patterns and active or break periods of the monsoon.