After an acquisitive 2016 fiscal year, Gunn Agri Partners’ Gunn Agri Cattle Fund has grown to a gross asset value of A$96.9 million upon seeing a 12 percent increase to its net asset value for the quarter ending June 30, 2016. The gain in value was driven, in large part, by weight gains and increases in cattle values.
With a fund target in place of A$300 million for investment in the beef industry in northern Australia, the Gunn Agri Cattle Fund currently runs more than 35,000 head of cattle across its three operations. The 36,095 hectare “Maranoa aggregation’ in Southwest Queensland, which was closed on in December 2015, includes Ballaroo, Ekari Park, an Fairview, and is being used as a backgrounding and breeding site. The 400,000-hectare Esmeralda Station in North Queensland was closed on in February 2016 and is being used to produce weaners for grow-out in other locations. Finally, the 18,338-hectare Goodar Station, which was closed on in March of this year and is being used for backgrounding, fattening, breeding, and for fodder production.
After its recent string of acquisitions, the fund seems to have overcome the typical “J-Curve” effect, exceeding an A$1.00 unit value after two quarters of operations.
“This is a solid result for the Fund’s investors,” said Gunn Agri Partners Chairman, Bill Gunn. “Overcoming the traditional ‘J-Curve’ effect of acquisition, transaction and establishment costs to achieve an increase in the unit value in the first year of operation”.
On the back of such a strong showing, the fund is continuing to seek out assets that fit with the fund’s investment strategy.
Driven by the strength of the Australian cattle market, strong demand fundamentals, and Australia’s competitive cost of production in combination with a weak Australian dollar, Gunn Agri is focusing on properties in Queensland, but also in Northern New South Wales and the Northern Territory. “We target properties that can add value to the existing portfolio by helping to mitigate weather risk and market risk,” Gunn Agri CEO Alan Hoppe told GAI News, adding,“We are undertaking due diligence on a number of potential acquisitions that will expand our breeder numbers and also give us greater capacity to grow out our calves to heavier sale weights.”
What Bubble?
The recent flurry of activity in the Australian cattle sector, with stations being bought not only by funds but by mining tycoons looking to diversify and capitalize on Australia’s strong market and trade fundamentals, could cause reservation about a bubble forming in the sector. However, Hoppe told GAI News that the uptick in activity is an expected response to cyclical conditions.
“The last few years saw a reduction in the number of properties that came on the market, mainly due to the poor seasonal conditions,” noted Hoppe. “It is to be expected that sales activity will increase once the properties present in a better way.”
Macro trends are in place that are expected to support consistent growth and a continued positive supply-demand balance for Australia’s beef sector and for the Gunn Agri Cattle Fund. Although the fund’s main markets are the developed economies of the U.S., Japan, and Korea, continued urbanization and increased wealth in other Southwest Asian nations is creating a framework that points to a strong future for Australian beef.
“More people now live in urban centers than in rural areas, and we passed this point back a few years ago,” says Hoppe. “Once people live in a city, they have access to electricity and refrigeration and this opens up opportunities for new dietary inputs. The growing middle class in Southeast Asia may not expand as rapidly as it has been growing, but it will continue to be a new source of demand for Australian beef.”
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Lynda Kiernan