BEEF Central’s enormously popular Top 25 Lotfeeders feature which concluded on Monday has drawn attention to the enormous investment that’s been made in feedlot bricks and mortar across the country.
While a large chunk of recent growth in lotfeeding has come via expansion at existing yards, there’s also been activity in acquiring a second (or in some cases, third) feedyard for further development. Some of these have been smaller yards with good development potential, and access to water.
Transaction activity for feedlots has been reasonably quiet in recent years, but valuers are still working hard behind the scenes assessing their worth.
In this week’s property review, two rural property valuers discuss the factors involved in determining what a feedlot is worth on the open market.
Toowoomba-based Sam Mason is a rural valuer at Herron Todd White. His approach is to assess the feedlot infrastructure component separately to the surrounding land, and then applies a rate per Standard Cattle Unit (600kg beast).
Mr Mason said a feedlot less than 4000 SCU in capacity is considered smaller and is typically family-owned and operated.
“The owners usually have additional farming or grazing country where they have a core breeding herd and grow their own fodder. They then finish their own cattle in their feedlot and may buy in some supplementary feeder cattle as well,” he said
Mr Mason said the market for smaller-scale feedlots (with relatively limited infrastructure, between 1000 to 1500 head), generally attracted well-established producers with western country looking for a depot to finish their steers and heifers before slaughter.
“A start-up producer who has no other country behind them is generally not in the market for a feedlot. Unless the buyer is a corporate, potential purchasers need a core vendor-bred herd to feed before they start trading cattle.”
What is important to note is purchasers are paying for the physical space of a feedlot and no livestock or commodities are included in the sale price. For instance, a producer securing a 499 SCU feedlot is paying around $650 per head for the approval to feed those cattle with basic infrastructure.
Valuers, like HTW, assess a feedlot as an approved ‘in use’ asset because as soon as the water, plant and equipment are removed, it loses value because it is no longer seen as an operating asset.
Mr Mason said the entry level, starting price for a 499 SCU operation is around $600/SCU with basic infrastructure which equates to $300,000.
“That is where it becomes confusing. The feedlot component is valued separately. A 499 SCU operation can’t be purchased for $300,000 because they simply don’t exist. A feedlot is offered to the market with both land and infrastructure.”
Infrastructure relating to the feedlot included items like silos, silage bunks, feed mill, commodity sheds, storage sheds and induction yards. The land is the actual footprint of the feedlot, as well as any additional backgrounding country or farming country for fodder production.
Mr Mason cited a recent example where a feedlot with a 499 SCU licence sold for $1.9 million.
“At $600 per head, the feedlot component was apportioned at $300,000 and the improvements at $600,000. The remaining $1 million for the land (ex-structures and ex-feedlot) achieved $15,000 per hectare.”
He said as feedlots gained scale, offer more water and have better plant and equipment, the appeal rises.
“To generalise – a 499 SCU feedlot usually sells for around $600/SCU, while a 1000 head operation achieves $650/SCU and a 1600 head feedlot with quality infrastructure can make $750/SCU,” he said.
Mr Mason said recent sales indicate an undeveloped feedlot approval can add between $80 and $150/SCU to a property’s price, although this may depend on many motivations and scaling considerations.
“A recent sale with a 5000 to 10,000 SCU developed licence showed approximately $700 per SCU. An approval for a further circa 2000 to 3000 SCU (currently undeveloped) in this instance was apportioned at approximately $100 per SCU.”
Mr Mason said a feedlot licence can be costly and the subsequent development can often outweigh the value per SCU.
“I recently valued a circa 499 SCU feedlot that had expanded to 2300 SCU. The cost of development was advised to be $1300/head and the added value of the feedlot was between $500 and $1000 per SCU, which means the owners may have been overcapitalising.”
He said many Queensland’s feedlots were located in the state’s south-east.
“These enterprises, situated in more desirable localities, have a greater underlying land value. A producer seeking to secure a 500 head feedlot close to a major centre will likely pay rural lifestyle premiums on the underlying land, however this can reduce the commercial viability of the operation in some instances.”
“Producers need to ask themselves, at what point are they paying too much for a place close to a major centre?” he said.
Mr Mason said the underlying land value of feedlots west of Chinchilla/Miles was generally lower, which meant producers are seeing improved value for money.
“Producers should consider the increased cost of transportation of stock and commodities due to the increased distance from sale yards, feedlots and abattoirs.”
Mr Mason said each feedlot was offered to the market with an intensive stock water licence, which is included in the SCU rate.
“Per 1000 SCU, 24mgl of water is required. If a property has 100mgl of water and a 1000 head feedlot, then it has an additional 75mgl of water.
“That water can either been seen as good water security for the operating feedlot, an additional water source for irrigation or excess water for potential future expansion (subject to the purpose of that water licence).”
Tim McKinnon, LAWD
LAWD valuation director Tim McKinnon is valuing plenty of feedlots above 5000 standard cattle units.
“It is often around financial reporting. Some investors need the assets valued on an annual basis, and others may be mortgage security valuations for banks for clients seeking expansion.”
Mr McKinnon noted only a few feedlot transactions have occurred over the last five years.
“Many large feedlot owners have opted to expand operations as an increasing number of Wagyu and Angus cattle go on feed for longer days, limiting the amount of space and rotations,” he said, reflecting findings in Beef Central’s recent Top 25 report.
Mr McKinnon said those looking to expand a feedlot or complete a greenfield development should consider several factors.
“Obtaining high reliability water in southern Queensland is challenging due to its scarcity, which has resulted in a substantial increase in water values. Also, it can be challenging to obtain new council and Environment Protection Authority approvals for a feedlot licence and as a result, expansion is often easier.”
Mr McKinnon said building a new feedlot could cost up to $2500 per SCU and while it wouldn’t make a profit if it was turned over quickly, one that has been held for some time would show a profit on an historical dollar cost average basis.
“Some feedlot operators considering expansion may not need to spend money on big ticket items, such as constructing additional induction or hospital yards or increasing the capacity of the feed mill.”
“For those who have the capacity and other yard components, spending under $1000/SCU on pens and shade could create some value,” he said.
Few transaction signals
Mr McKinnon said at present, it was a challenging time for valuing feedlots.
“While there is little transactional evidence, we do know the cost to build feedlots is increasing. The questions is whether there is a margin at the other end?”
“If an operator has been feeding their own cattle for the past two years, it has probably been pretty tough. However, many feedlots have a custom feeding component where they are feeding someone else’s cattle which is likely to be offsetting their costs.”
Mr McKinnon anticipated that a good size (10,000 to 20,000 head) feedlot brought to the market would attract strong interest from big industry players.
“The value for good scale feedlots is likely to increase going forward due to the difficulties in obtaining approvals for new developments, the cost of entry and substitution and the increasing number of cattle on feed,” he said.
“The number of cattle on feed has increased year-on-year. Even in areas where the drought has broken, producers are still grain finishing cattle.”
Smaller feedlots would continue to attract family businesses seeking to finishing their own cattle.
“Location is also key, with operations in southern Queensland and northern New South Wales attracting custom feeding for Wagyu and Angus cattle.”
Mr McKinnon values 3000 to 4000 head feedlots for sale purposes around $1000/SCU and anything above 10,000 head at $1200/SCU.
“A-grade assets can fetch up to $1500/SCU depending on the quality of development and the overall presentation of the facility,” he said.
Recent feedlot sales of note:
- New owner for Kidman’s Tungali feedlot in SA (August 2022)
- Midfield’s McKenna family secures SA’s Wanderribby feedlot (Sept 2021)
- NSW and Qld feedlot investments for supply chain manager, Allied Beef (August 2021)
- JBS and Rural Funds Management announce feedlot finance deal (July 2018)
- Downs feedlot sale underpins momentum in grainfed beef (July 2018)
Click here to access Beef Central’s Top 25 Lotfeeders feature
In my opinion, and depending on the quality and age of the feedlot asset’s infrastructure, an intending purchaser is looking at between around $600 per Licenced-Head, to an upper-bound of around $1,100 per Licenced-Head: on a WIWO basis, for both the land and the improvements (on, and to) said land … that describes the licensed feedlot.
Any other land and the improvements not necessary to the feedlot (including housing), is to be valued separately; at highest and best use; for that place, in that location. IMO