Under promise and over deliver

A repeat investor recently asked the MyFarm team to complete a review of his syndicate investments. He was particularly interested in how the investments were performing versus the MyFarm estimates in the original Memorandum’s of information.

We thought the results were interesting and worth sharing. 

• Farm A is a 160 Ha Southland dairy farm syndicated in autumn 2010 with takeover in August 2010.  Since that time we have been able to purchase a neighbouring property, increasing the milking platform and making the property self-contained for grazing and supplements.
• Farm B is a 260 Ha Southland farm in the Woodlands district purchased 1 June 2010. 
• Farm C is a 240 Ha dairy farm near Otautau, again in Southland, purchased 1 June 2011.

The following table shows data with three months of actual results and nine months of forecast results.  It is clearly early days but the first three months of the year are high cost months (winter grazing costs for example) and milk production trends are already being established for the season.

Farm A is forecast to achieve a 6.2% return versus 5% listed in the Investment Memorandum.  The farm is undergoing significant development and returns will increase once we move from a development focus to ‘efficient farming’ focus.  The milk production season is off to a good start.

Of note is that we have completed a revaluation of Farm A – in 12 months of ownership net tangible assets are estimated to have increased by between 4 and 5%.

Farm B is an existing farm sustaining high levels of production.  Although the farm is running slightly behind milk production targets it is well up on last year and is forecast to produce net profit before tax (prior to stock revaluations) returns of above 8% p.a.

Farm C has just been purchased so its income and returns are affected because only advance milk payments will be earned this year.  Effectively the data in the above table is the return with a milk price of $5.75/kg milksolids – there will be a further $1/kg milksolids of deferred income plus [22] cents per share dividend being paid during the following 2012/13 season.  Milk production is well up on target and following an on-farm meeting last week we will increase our budget targets by more than 15,000 kg milksolids.

Because farming is a biological system we can’t always beat our forecasts - last years results in Southland, for example, were affected by the Spring snow storms.  But it is nice to under promise and over deliver.

The MyFarm Team

26 September 2011