Property

Weekly property review – Stocked holdings the only way to sell in far north Qld

Property editor Linda Rowley, 25/05/2016

LAND values for cattle stations on the remote Cape York Peninsula in far north Queensland have remained much the same for the past 10 years, but there’s probably no better time to sell, market watchers say.

After a considerable drought in large-scale listings in the region, rural property agent TopX FNQ has listed more than 4000sq km of cattle country in the Musgrave Station region in the past couple of weeks.

The listings include:

  • 230,000ha Holroyd River Station – Beef cattle breeding operation on a large scale with future potential for tourism and protein production. Located 530km north-west of Mareeba or two hours from Musgrave/Coen. Carrying capacity 18,000 head. Holroyd River includes the largest nature refuge in Queensland, taking in nationally-recognised wetlands, threatened vegetation communities and threatened plant and animal species. In 2010, owner D’Arcy Thomas Byrnes won a top environmental commendation at the Premier’s ClimateSmart Sustainability Awards for fencing-off sensitive wetland areas to prevent cattle access, establishing new off-stream watering points for stock, monitoring and controlling pest animals and improving plantings.
  • 121,406ha Yarraden Station – Beef cattle breeding operation, 440km north of Mareeba or two hours from Musgrave/Coen. Owned by the same vendor as Holroyd River, Yarraden has a carrying capacity 8000 cattle. It will be offered separately or conjointly with Holroyd Station, together with a domestic licensed meatworks facility at Rocky Creek on the Atherton Tableland and two butcher shops in Cairns for a WIWO POA.
  • 64,700ha Strathaven Station – Breeder block, criss-crossed by three Peninsula river systems, 470 km north-west of Mareeba and 70km west of Musgrave. Sale includes 3500 head, but carrying capacity is 3800.

TopX property agent John Friend, who services the remote Cape York region across to Croydon, Normanton, Laura, Cooktown and Karumba in the Gulf, said the three sales coincide with mustering.

Brahman breeder with calves on Holroyd River

Brahman breeder with calves on Holroyd River

“I advise property owners who are considering selling to do so during mustering season – when cattle are in the yards and staff are busy,” he said.

The season often dictates the timing of a property marketing campaign in the Peninsula region. It allows potential buyers or investors to access the properties from now to the start of the wet season. In fact, they can follow the cattle being trucked south to the meatworks, right up to the point of sale/and into retail/wholesale sector.

The Byrnes family, which owns Holroyd River and Yarraden Stations, have for many years run a vertically-integrated beef operation including the Rocky Creek meatworks located between Mareeba and Atherton. The plant is run in conjunction with the company’s two cattle stations and two retail butchery outlets in Cairns, together with a meat wholesale business.

Determining an individual value for Holroyd River or Yarraden Stations, together with the meatworks and retail shops is difficult to determine, according to Mr Friend, but the entire operation is expected to achieve more than $30 million.

Because all three properties are located on the Cape York Peninsula and are a five-hour drive from Cairns, Mr Friend said interested overseas parties were likely to fly into the stations.

“I plan to remain on property from Monday to Friday and drive people between the holdings, which are just a couple of hours apart,” he said.

While it is still early days, there is plenty of interest in the three Cape York stations with inquiry so far from China, Malaysia and several large Australian corporates.

Mr Friend said the two owners (of the three properties) were selling for family reasons.

“Those reasons may have been put on hold if there wasn’t industry certainty, driven by the current confidence in beef and the China-Australia Free Trade Agreement,” he said.

Mr Friend explained when Strathaven’s vendor Anthony Elliott, who has considerable investments in northern and western Queensland, purchased the property six years ago, he rebuilt it from top to bottom.

To fully-utilise Strathaven, he invested in new fencing, new steel yards and new machinery sheds. He also built two new houses – one for the manager and one for himself.

Cattle numbers determine property value

It is interesting to note what dictates property value in the region.

Holroyd 2

Mr Friend said the land component had remained much the same and the country had the same production figures as it did 10 years ago.

“But what’s making  these properties more attractive is the number of cattle that will be involved in the sale,” he said.

“The value of Cape York cattle stations will have doubled in 10 years simply because there are larger numbers of cattle involved, and cattle are worth more.  Strathaven should make $12 per hectare, fully stocked on a walk-in walk-out basis, with the new improvements.

Mr Friend said far north Queensland experienced a similar property market about 15 years ago.

“To try and market a property in Cape York without stock would be very tough – almost impossible due to the difficulty in stocking a bare property. There aren’t any breeder cattle available in large numbers anywhere up here, so it makes a destocked property virtually unsaleable in today’s market.”

Mr Friend said concerns about a lack of breeding cows under 10 years old in the north of Queensland dominated a recent TopX agency group meeting.

“Most of the stations up here start marketing their 10 year old cows as culls, or for slaughter, or on the store market. Our advice is not to sell any females because there are no young breeders for sale.”

“For a buyer of a destocked station that would normally 3000 to 4000 breeders, they are just not going to be able to source them. It would make that property a very worrying investment.”

 

Buying stocked grazing land in the Peninsula at $12/ha?

Readers, please note: comments below were sourced from a contact by Beef Central publisher, Jon Condon – not property editor Linda Rowley 

Beef Central’s readers from more southerly parts of the continent who might be unfamiliar with the Cape York Peninsula area, may struggle to understand how it’s possible to buy any grazing land for $12/ha, let alone stocked.

For this reason we asked a trusted contact in far North Queensland who knows the Peninsula region well to provide a snapshot of the environment, and the cattle production challenges it faces.

He warns, from the outset, that there are a lot of problems with trying to make making any money out cattle in Cape York.

The big pastoral companies had selected the better country in the region based around the big river systems running west, on the west side of the Cape to the north of Normanton. This included better frontage country and fair areas of heavy clay soils, treeless black soil and marine plains that grow decent amount of grass. This part of the Cape, at least, is not too phosphorus deficient.

The rest of the Cape is fairly ordinary low-fertility soils (with the exception of the Lakeland Downs basalt country near Cooktown) growing a range of reasonably palatable grasses including speargrass, plume sorghum, kangaroo, golden beard and forest blue grass. Unfortunately over-grazing and annual burning has lost good grasses in some areas, with unpalatable species like wiregrass, reed grass, canegrass, grader grass, fire grass, blady grass and rats tail dominating.

As well, the long-term practise of fires in April-May has led to a lot of timber thickening, so a lot of country grows a lot less grass under the tree canopy.

Except for river frontages, the rest of the Peninsula is severely phosphorus deficient, and if phosphorus is not fed over the wet season, branding rates often will not exceed 50pc, and death rates will be 10-15pc each year or higher. Also, annual liveweight gain will often not reach 60-80kg.

With phosphorus supplement programs, these figures will be lot better, but supplement costs will be in order of $20-25 head/year, depending on freight rates.

Another beef production challenge in the region is freight costs themselves. Supplies in, and cattle out, are all expensive, and most years a truck won’t move from December to April-May because of flooding and boggy roads.

That can lock a Peninsula cattle operation into selling cattle at the time of year when there is traditionally already a flood of cattle onto the market with first round mustering across other parts of North Australia.

The cost of further developing country in the region is hard to justify, in a region where a stocking rate of an adult beast to 20ha is common, producing less than 50pc weaning rates plus only 60kg annual liveweight gain. The economics behind adding further fencing and waters is often hard to justify on paying off that sort expenditure.

Good points for the Peninsula region include a reliable wet season and potential for stylo legume development.

Seca and verano stylo planted out through trees, plus phosphorus feeding in areas without timber thickening issues, have potential to boost property productivity in the region.

The stylo-phosphorus strategy, executed properly, can increase annual liveweight gain, drop death rates, raise fertility levels, and improve stocking rates to allow for fencing and new waters to be a viable option.

“Throw in a botulism vaccine for everything, vibrio the bulls and get cattle into some management groups, and things could happen,” our contact said.

With the low cattle prices and the rising cost price squeeze over last 30 years, however, most family-scale enterprises in the region have resorted to seeking an off-farm income, such as grading/road maintenance for local shire council.

“If cattle prices hold up to reasonable levels over next 10 years, some interest may be shown in development on the Cape, even if that involves usinbg the country as a basic breeder block and consigning weaners to southern growing/finishing country. Some of this is happening now,” he said.

 

 

HAVE YOUR SAY

Your email address will not be published.

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

  1. Rory Robertson, 14/06/2016

    Readers,

    Apologies for being late to the debate. I’m interested that Beef Central managed to have a detailed discussion about Strathhaven Station (65,000 hectares) supposedly being available near $12 per hectare ($780k).
    That’s fully stocked (3500 cattle), and with new fencing, new yards, new machinery sheds and two new houses!
    If that price – $780,000 – seems unlikely to many Beef Central readers, that’s because it reflects some sort of error. In fact, I have just spoken to the agent involved – John Friend of TopX – and he insists that the Strathhaven operation is being marketed with expectations in the $4 to 5 million range.
    Specifically, he’s marketing Strathhaven near $30 per acre, or $75 per hectare. That could end up being a stretch but it’s certainly much closer to the likely reality than is the $12 per hectare cited above.
    One lesson here is that if a figure looks hopelessly wrong, it often is. I trust that Beef Central will do its best to fix the misunderstanding, to keep faith with its readers.
    To be upfront, I think I know what I am talking about – in this case – in part because I own a property nearby. In fact, if Strathhaven – fully stocked and with two new houses – were indeed available for the implied price of $780k, I would already have bought it!

    Alas, the price is multiples higher, notwithstanding the fact that Cape York cattle country is still the cheapest well-watered ground in the western world.

    Best wishes,
    Rory

  2. Mag Mcneil, 26/05/2016

    What Vail said is 100% correct. The Cape is a totally different place to run cattle. Plus he knows his stuff when it comes to finance. But who would you trust “Cattle agent”? Keep up the good work Beef Central. Vail did a great article years ago about land value and cattle required to pay for this investment. Maybe you could post the article again, or ask him for an update.

  3. Michael Vail, 26/05/2016

    Another fact that many do not consider much, if at all, is the quantum of risk (and all risk is cumulative, not by addition, but my multiplication) involved in a pastoral zone grazing enterprise.

    The biggest risk of all being the fat-tail risk of the unknown unknowns!

    Who knew, or even budgeted for 10-years if drought, or the fact that some Cape York country was flooded for months because the water could not get away, and so had to wait for evaporative effects to occur! In both cases, the grass died.

    It is instructive to imagine what the earnings multiplier when applied to the Operating Profit, after tax (EBIAT) looks like, after risk metrics are applied.

    If long term average Return on Equity is around 14%, and the long term average cost of debt is around 7%, the earnings multiple might be around 28.0-Times. Excellent! I hear everyone say; but once this is discounted for risk of around 18.5% for 10-years, this earnings multiple reduces somewhat to around 4.5-Times EBIAT.

    Late-stage Venture Capital discount rate is usually assumed at around 15%, then this number must be adjusted up for weather and commodity price risk.

    Of course, if the ROE is lower, then the multiple is also lower.

    This is noteworthy, and important; as this is the Enterprise Valuation, WIWO, and includes all things necessary.

    Not rocket science. Just simple Corporate Finance mathematics.

    Worth considering; especially by any Investors.

  4. Michael Vail, 26/05/2016

    That should have been ROIC, not RICS . Sorry. Small buttons, and large fingers.

  5. Michael Vail, 26/05/2016

    Furthermore, for an investment to actually be one, the return on invested capital must be greater than the entities cost of capital.

    If the WACC, or weighted average cost of capital is 13.0%, then the RICS must be greater than that to show an economic profit; else no value may be added.

    So why would any rational person pay a premium?

    Net farm gate price for a beast in the Cape; where all transport, feed, and selling costs are deducted, as if it were a paddock sale, is the true value of the beast.

    Just saying.

  6. Michael Vail, 26/05/2016

    What people pay, and what people get, for their money may well be two different things!

    All pastoral grazing operations, if they are a going concern, should be sold WIWO, and with all things necessary.

    Why, you may well ask.

    Because the quality and quantity of the soil, vegetation and water, available to the Investor are a prime consideration, and as a pastoral zone grazing enterprise is all about the quantum of meat able to (produced from the operation, that is obviously where any true economic value for the enterprise comes from.

    Pastoral grazing production is all about the feed and water, and that is the linkage that makes an operation function. Cattle cannot live without them, else they die. The plant and equipment would lie idle for want of something to do, and the other necessary linkage, the capital, would be gainfully employed elsewhere.

    6-month country deserves the Discount that is applied to it!

  7. Matthew Kennedy, 26/05/2016

    Dear Sir / Madam,
    I read with great interest your two sided view on North Queensland Cattle Country.
    I am very disappointed with Beef Central because to make a comment on Beef Central I have to give my full name, however, your regular sources of anonymous opinions are never revealed. So they obviously just don’t have the balls to put their name to it and Beef Central like to create a story from who?
    For people that don’t know me my name is Matthew Kennedy and I have two main business interests. I own and run a Stock and Station agency business in North Queensland “Kennedy Rural” at Richmond and Julia Creek. I also have a small breeder block in NQ which is Phosphorous deficient and runs about 1500 cows, I am originally from Inverell in NSW. Mr Friend worked for me approximately 12 years ago. I know Linda Rowley on a phone basis and we talk occasionally. Record Set!
    I would like to share my experience on Deficient NQ Breeder Country.

    FACTS

    1. There hasn’t been a drought on NQ property listings, there has been a drought on NQ property sales! (Pre 2015)

    2. In my Stock and Station Agency business Kennedy Rural, I sold three deficient properties in the Gulf in the last 10 months for clients for $37 / ha (avg) bare of all Livestock Plant & Equipment. (As advertised on Beef Central). All three buyers wanted these properties for grass and without cattle. There are 3 other sales of similar bare value but where sold with cattle included. The total of all these sales is just under 700,000 ha. One other small breeder block sold for $61 / ha bare. Destocked and stocked properties are selling well in the current market. Not every property buyer wants the property stocked ,or, destocked.

    2. The people that bought the above properties still have all their cattle + some. These cattle have more than tripled in value since 2013! Now this years weaners are selling off this country for $500 – $650 / head on farm!

    3. Breeders are available to buy in NQ I have over 12,000 Cows and Heifers for sale right now with over 90% under 10 years old in several lots.

    6. On my breeding property lick costs about $60 / Cow and Calf Unit on average each year. Calving percentage varies from year to year but over eights years seems to average about 60% @ 180kg. This is very dependant on the Lick Fed and the stocking rate. If lick is fed correctly and the country stocked correctly on average 100 kg / year / head weight gain is obtained.

    5. The economics behind investing in waters and fencing is easily justified if the cash is available. Subdividing a paddock in half might cost 20k but can reduce the chopper bill by 8k over 2 musters that’s 40% return in the first year! Putting in one new water might cost 20k to run an extra 200 cows producing 120 weaners or 20% return including the cost of the cows and lick in the first year!

    Just my experience!

    Matthew Kennedy

    Thank you for your comment, Matthew. We’d like to point out that the article was clearly NOT talking about North Queensland in general, but specifically the operating conditions in the Cape York region, i.e. above Cooktown. Editor

Get Property news headlines emailed to you -
FREE!