Agri Investment Saw Strong Capital Appreciation

The Story Behind the Agri Investment 

Remember the smoggy summer we had in 2019? Australia was suffering the most severe drought in over 100 years. Over 18 million hectares have burned in the Australian bushfire season 2019–2020 as of mid-January according to media reports, destroying over 5,900 buildings including over 2,800 homes. In addition to human fatalities, many millions of animals are reported to have been killed. 

Because of this millennium drought lasting from 2017 until late 2019, our nation's cattle numbers dropped down to the lowest they have been in 30 years. While recent good rains on the eastern and western seaboard have seen good pasture, therefore farmers are restocking their herds, pushing prices up. Strong adds the ongoing global demand for protein following the African swine flu outbreak in China, plus protein is in short supply globally, has continuously pushed Australian cattle price up in the past 2 years.

Wharton (WA) Pastoral Fund entered agri business with the best timing and secured three extreme large pastoral stations spinning 900,000 hectares of land in the lowest point in the cycle. The team identified the 3 properties - Kumarina, Marymia and Weelarrana station back in February 2019, at a time when Australia was in the grips of one of the worst droughts in over 100 years. This drought had caused one of the biggest sells offs of livestock we have seen in the past 50 years. Most of the Northern Territory, Northern Queensland and Northern WA sold between 90 and 100% of their livestock, mainly cattle up north. This has seen some properties such as Newcastle Waters that normally carries up to 90,000 cattle sell off to retain a minimum of just 1,000 for re-breeding. For the three properties we identified, they did not need to destock 1 head of cattle, as the properties sit over 1 million acres of fresh water that flow down through the Gascoyne Gorge and end up at the end of Marymia. This fresh water helps the properties survive the drought but at the same time had access to unlimited water as the underground water was still full.

Since 2020, we have seen unprecedented rain throughout the Pilbara region with some areas of the properties recording upwards of 1800mm rain which is two years’ worth of rain in a single season. This has filled and started all the rivers flowing and feed is now growing at an accelerated rate. The cattle prices are all starting to increase and put on weight, and we are now seeing the cattle breeding cycle again and mating is in full flourish.

In 2021, the current market is recording a 100% increase in cattle prices. The fund manager and assets managers make their decision to enter the market with the purchase of properties at one of the lowest points in the last few decades and now we are seeing rain, demand and prices that are equivalent to a one in a 50-year season.

This trend will only increase as producers will hold whatever female cattle they have now to try and rebuild herds, which is a 4 to 5 years breeding cycle and considers that most of the cattle sold during the drought spell was male cattle, with most producers trying to retain the female cattle for breeding. As the drought continued, most producers were forced to sell off most of their female cattle. The market prediction moving forward is that female cattle will be continued to hit the recorded level as producers continued to try to rebuild numbers back to pre-drought numbers.

Market Updates 

1) Eastern Young Cattle Indicator price doubled in two years and is predicted to stay at high level until herd restocked which normally takes 4 to 5 years.

EYCI – the price gauge for live cattle sales – saw the price breaks through the $10 per kilogram barrier, up to 200% of the price in 2019.

2) Global demand outweighs supply, cause global beef price increases.

Global protein shortage in many developed markets is shifting the international beef landscape.

3) Drought in the US and Brazil leads to cow liquidation, restocking will further push up beef price.

The US and Brazil as key players in global beef trade, due to widely affected drought in the Northern Hemisphere starting from 2020, cattle prices of these countries have been pushed up which primarily being driven by local restockers and limited supply. As of January 1, 2021, the herd has decreased by 1.3 percent to a low point of 93.6 million cattle head.

4) World population growth leads to increased demand on protein.

By 2050 the world’s population will reach 9.1 billion, demand for animal protein will rise significantly as more of the world increases wealth over the coming decades. The Food and Agriculture Division of the United Nations predicts that world meat demand will be doubled by 2050.

Our Plan to Grow 

The massive selloff of beef and sheep because of drought that have hit over 80% of the production country in Australia, will see a massive shortage in available cattle and sheep for slaughter over the next 4 – 5 years, as we try to rebuild our beef and sheep meat herds, as all female cattle and ewes will be retain where possible for breeding purposes.

Also, with the ever-expanding populations in Asia, protein over the next 5 – 10 years will be in huge demands, and we will see a lot of pressure on all types of protein, both domestically and internationally from Australia. With the current drought, the requirement for farmers to buy and feed livestock for the last 18+ months and the amount of destocking of livestock in both the Eastern States and the Western States of Australia, have seen Farmers under an enormous amount of Financial and mental pressure to make ends meet on the farms, and as such we see this as one of the best opportunities to acquire large pastoral holdings, that are underutilized, at prices well below the past 10 years market prices. 

The team therefore come up with a fully integrated supply chain model – the full “Paddock to Plate” solution. We have successfully achieved the milestone of the first stage, and we have successfully delivered amazing returns to our investors in the past two years. Our next steps to grow are - 

Feedlot and Irrigation program

Our next step is to take advantage of the declining availability of agricultural land and developing our fully integrated supply chain model with a modern, high tech, best animal handling facilities Feedlot with a capacity more than 20,000 cattle, to further add value to our pastoral properties and to achieve the best product available for our customers. We have selected our properties in locations that are climatically diverse, as well as ideally situated to Major transport links, ports for live export, abattoirs and high yielding farming country that produce wheat, oats, barley, and canola required to feedlot cattle. Our expansion into feeding cattle will ensure that WPC have a consistent and high-quality product to offer our customers in addition to our grass-fed beef.

Abattoir and value-added Business Plan

Our next step in the fully integrated supply chain model is to either invest in a Joint Venture, with an existing abattoir and eventual look to take over the entire asset or build a State-of-the-Art Abattoir with the further extension of a processing or Value adding facility. Our aim is to be able to supply our customers with a full “Paddock to Plate” solution, for all their grass and grain fed Beef and Lamb requirements, from the highly sort after Rangeland area of Western Australia, to deliver a clean, safe, and hygienic product, whilst at the same time maximising our returns to our investors and shareholders.

With the best experts of the industry and our disciplined way of investment management, we will keep delivering outstanding results and value to our investors. If you are interested in agri business investment or seeking for opportunities of future partnership, please contact our team info@whartoncapital.com.au.