FAITH in the appetite for quality beef coming out of Asia, and that a ‘new normal’ now exists in cattle prices, has fueled a significant move into lotfeeding on the part of leading agriculture investment outfit Rural Funds Management.
Australian-owned RFM will buy, and lease back, the five feedlots of Australia’s largest meat processor JBS while also funding a facility to supply cattle to those feedlots over the 120 days it takes to turn them off to JBS for processing.
The southern Queensland and NSW feedlots have a combined capacity of 150,000 head and support JBS’ grain-fed cattle business. JBS processes more than a million head of cattle annually and exports to more than 50 countries.
Under the terms of the agreement, JBS will continue to operate and manage the feedlots for up to ten years and says the move will have no impact on its producer suppliers.
The deal appears to be largely about JBS shoring up supply of grain fed cattle while freeing up resources to focus on other areas of the business - and RFM venturing further into the beef industry.
RFM, one of the oldest and most experienced agricultural funds management organisations in Australia, last year acquired and leased back 390,000 hectares of the Camm Group’s Natal Downs cattle country in Queensland.
That followed a $50m investment in two other far northern Queensland cattle operations the previous year.
Managing director David Bryant said RFM was raising $149m, which would provide spare capacity to acquire more assets and they would most likely be in beef and cotton.
“The consensus is the uplift in cattle prices in Australia has set a new high floor price and the fundamentals supporting that are now familiar with most in both the beef industry and in financial markets - primarily the demand coming out of Asia for Australian beef,” he said.
“We believe because we have access to capital and some expertise, we can improve properties in ways that previous owners probably wished to do but lacked the financial capacity to achieve.”
The JBS announcement, however, was “purely financial,” he said.
“The feedlots are strategically important to JBS to ensure their processing facilities have consistent supply of grainfed cattle,” Mr Bryant explained.
“Historically they have had a funding arrangement for cattle. We’ve just taken over that arrangement while simultaneously buying and leasing back feedlots.”
RFM owns an overall rural land portfolio worth in excess of $700m, including $100m in poultry farms in the Riverina and Victoria.
Mr Bryant said RFM now believed the return on capital was higher for beef properties than poultry “providing you can make improvements to productivity.”
Beef was an industry very attractive to RFM at the moment, he said.
“It’s Australia’s biggest agriculture industry and we are happy to invest here.”
He was confident in the supply of cattle for lotfeeding.
“JBS will act our agents to buy the cattle. They have networks and plenty of experience,” he said.
“Drought is always a concern but we are a year closer to the end of it and I think we will get through.”
JBS Australia chief executive officer Brent Eastwood said these type of arrangements were fairly commonplace in the Australian agricultural sector.
“The agreement will allow JBS Australia to continue business as usual with our customers and grain-fed cattle supplier partners, while establishing a long term relationship with one of the country’s most respected Australian-owned funds to pursue future opportunities,” he said.
“The JBS Australia team remains focused on working alongside our leading producer partners to ensure Australian red meat and value added food products maintain their status as the preferred choice of discerning customers in Australia and around the world.”
The transaction is subject to normal terms and conditions, including Foreign Investment Review Board approval.