There's no business like farm business

Brian Burrough (CE), Owen Trimmer (CFO), James Wright (COO), David Cushing (exec chair), Rodger Finlay (deputy chair) and Andy Train (director). (front) directors Sir Selwyn Cushing, Sir Ron Carter.

A quality rural portfolio in New Zealand for the long term has proved a very good investment.
David Cushing, executive chairmanFarm managers rubbed shoulders with knights, merchant bankers and individual investors at the Rural Equities Limited (REL) AGM on Wednesday.
Held in the Oruawharo Homestead chapel in Takapau, executive chairman David Cushing said REL was one of the most successful farming businesses in the country.
In March it celebrated 10 years since its separation from Williams & Kettle, since that time rewards have been outstanding for the Unlisted exchange company.
"A quality rural portfolio in New Zealand for the long term has proved a very good investment, there is no doubt about that," Mr Cushing said.
"In 2004 the 25 farms were worth $98 million. Today those same farms are worth $198 million."
In 1999, under a previous investment vehicle, the properties were valued at $41 million.
"If you invested $41 million in 1999, to get 198 million is a compound rate of return of 10.95 per cent. That's an outstanding return for a low-risk proposition over a long period of time.
"If we can continue that rate of return for the next 15 years the properties would be worth $940 million. So hopefully we will be a billion-dollar company."
REL was formed after the Williams & Kettle board spun off the shares to Williams & Kettle shareholders "at a bargain basement price of 90 cents".
"We have certainly come a long way since that time. Based on the last traded price of $4.50 REL has provided shareholders with a compound annual return of 17 per cent over the last 10 years."
Mr Cushing, with his father Sir Selwyn, owns more than half the company.
Sir Selwyn would be one of the most experienced directors in the country. Also on the board is Sir Ron Carter who received the country's highest honour this year, the Order of New Zealand, for contributions to infrastructure, governance, business and education.
Deputy chairman Rodger Finlay is a former farmer and investment banker with 25 years' experience.
Director Andrew Train has a background in farming and extensive directorship experience in the agricultural sector. agricultural companies, in particular farm management and supervisory businesses.
For the last financial year REL's comprehensive income was $24.02 million, more than double the previous year's $10.92 million.
EBIT was $6.43 million compared with $3.3 million in 2013.
A dividend of seven cents per share was paid, up from previous year's six cents per share.
Debt is anticipated to be reduced to about $20 million at balance date compared with $27 million at June 2014, resulting in a gearing ratio of less than 10 per cent.
David Cushing said the near-doubling of EBIT was due to productivity gains and strong commodity prices.
The group's six dairy farms achieved record production of 1.67 million kilograms of milk solids which contributed "a significant portion" of earnings thanks to a record milk price.
Production gains in its three Waikato farms (managed directly), combined with stronger beef, lamb and wool prices also contributed to the increased earnings.
The company expects lower milk prices for the coming year to be offset by higher beef, sheep and meat prices.
Nine of the company's properties are directly managed, six of which are dairy farms.
Mr Cushing said New Zealand will always be the "backbone" of the company but in the interests of diversification it acquired a stake in Australian listed Agricultural company Tandou, one of the largest producers of cotton, cereal crops and organic lamb in Australia. It holds an extensive water-rights portfolio.
"In the middle of last year we acquired an 11 per cent stake and after a rights issue increased our holding to 12.6 per cent.
A poor cotton harvest lessened enthusiasm and REL reduced its holding by half.
Since balance date a $5.1 million dairy conversion began on its 396ha irrigated Eiffelton property near Ashburton. A 233ha block will be converted to a 940-cow dairy farm and an irrigated 163ha block will provide winter grazing and supplementary feed.
David Cushing said the rural property market was buoyant with further growth in values nationally but especially in Canterbury, where values were up by about 17 per cent.
"It was also pleasing to see a lift in the value of our Hawke's Bay and Waikato properties which have been relatively flat in recent times - I think the gains in Hawke's Bay were the biggest in seven years, which is good to see."
It recently sold Annandale, its smallest property , for 20 per cent above valuation. The rural property market was "alive and well" - there were six bids for the property.
Total proceeds from the sale including livestock would be about $7 million.
"We sold Annandale because the yields over quite a long time were not satisfactory and we would like to use the capital elsewhere. We can do a lot better with the money reducing debt."
There is one other property the company was "mulling over options with".
It sold carbon credits for a gain of $250,000 from a "horrible" Ngaruawahia forest sold in 2012 with "horrendous" harvest costs.
"We were very fortunate to divest. We only had the one buyer, no one else was interested. We pocketed the carbon credit units which we thought would be part of the deal, but the Chinese didn't pick up on it."
Milk production from REL's six dairy farms rose for the third consecutive year.
"To cap it off Fonterra's milk price for the season was $8.40 per kg of milk solids, which was a 45 per cent increase on last season and the highest milk price paid by Fonterra since it was launched in 2002."
One third of REL's milk goes to Synlait which paid $8.27.
"It is important to note that REL has a balanced, diversified portfolio. Even though the dairy prices reduced substantially, at this stage we are anticipating a reasonable year in terms of operating EBIT.
"The company owns a quality diversified portfolio of prime agricultural properties and will continue to invest in attractive investment opportunities within the portfolio. It is expected that there will be opportunities to consider to expand the use of irrigation within the portfolio as new regional schemes are developed. Directors believe the merits of long term investment in agriculture are soundly based.
It was currently crunching the numbers for investing in the Ruataniwha water storage scheme in Central Hawke's Bay. Two of its properties are inside the scheme.
"We are looking at water costs, alternative land use, other capital projects in the group and the balance of the portfolio, so there is a lot of work going on. We will make a decision in the new year but it is a potential opportunity.
"I must compliment the Hawke's Bay Regional Council who have batted on to try and pull this off."
Chief executive Brian Burrough said developing existing land was very important to REL - higher income drove land value.
"It is about developing the existing portfolio. That is quite important to us because, when you have 12,000ha to 13,000ha of land, it is not about buying more. The returns from developing the land far outweigh returns from purchasing more land.
He said the return on spending $4 million developing its mid-Canterbury Eiffelton farm was nine per cent at $6.50 milk payout, a long-term average price.
At about five dollars the return was four and a half per cent "but if you get to $7.50 return shoots up to 14 per cent on your capital".
He said strict nutrient run-off regimes were "coming to a neighbourhood near you whether you like it or not".
Canterbury's current regime was a good place to study how it affected farming. Of vital importance was establishing a nutrient baseline, which sets the maximum amount of leaching nitrogen.
A key to nutrient management was making sure water did not go below the root zone.
"If it gets through the root zone there is only one place for it to go - through the soil into the lakes and rivers. That is what we want to avoid at all costs".
He said the practice of spreading nitrogen on dairy farms "in big dollops" which was "the quickest way of providing more grass for our cows" would have to change.
"We will have to put it on in smaller amounts and put it it on more often."
The technology that came with centre pivot irrigators enabled easy compliance. Water applied matched natural evaporation.
Dairy feed pads also mitigated nutrient leaching. Waste on the pads could be collected and then put back on the paddocks at a time when it would not be washed away.
"We can farm within the rules as long as we know what they are and they are reasonable."