The principles of generating wealth in broad acre farming businesses

Peter O’Loughlin,

Mutual Trust.

Keywords: wealth, investment, asset, principles.

Take home messages

• Agricultural assets have a place in a balanced investment portfolio.
• Agricultural investment fundamentals are sound.
• Soil is where any agricultural production business starts.
• Key to a successful agricultural business – what drives profitability.
• Break the business down – real estate and production business.
• Top 20% of operators are making good operating returns.
• What do the Top 20% of businesses have in common?

Mutual Trust (MT) – multi-family office

• Originally established by the Baillieu family in the 1930’s, incorporated in 1950’s.
• Tax and accounting, investment advisory, business consulting and family CEO services.

Mutual Trust Agribusiness

• service 20 rural properties;
• unique and tailored service offering;
• experienced and respected team;
• Mutual Trust and its clients have a long and successful agricultural business exposure;
• committed to agriculture as an asset class now and into the future;
• MT board members have large agricultural exposure, thus understand the sector; and
• acquisition of an agricultural asset.

Mutual Trust Agribusiness Services

• management of an agricultural asset;
• administration of an agricultural business; and
• consulting services.

There are three key roles that agricultural assets play in our clients’ portfolios:

1. Exposure to the food and fibre story.
2. Uncorrelated returns to provide diversification.
3. Holding real assets to provide a hedge against inflation.

The underlying investment must have direct positive exposure to the key thematic of rising soft commodity prices.

• There are two fundamental forces at play:
  • growing demand for food and fibre; and
  • limited supply of the inputs required to produce those commodities.

• Demand factors:
  • population growth, maturing diets, alternative uses of agricultural commodities.

• Supply factors:
  • soil, water and land management – the primary inputs into production – are finite.

Figure 1. Index comparing agri commodities vs. other assets.

Figure 2. Southern Grampians Shire - rural land sales greater than 200 ha.

Top 20% of agricultural businesses

• strategic plan;
• management knowledge and expertise;
• drive production;
• cost control;
• marketing;
• people;
• passion;
• sustainable;
• technology; and
• scale.

Summary

• rural sector fundamentals are very strong;
  • soil is where you start;
  • the real estate;
  • the business;
  • best farmers are making very good returns;
  • must be a 'Top 20%' producer; and
  • challenges.

Contact details

Peter O’Loughlin

Mutual Trust

0408 171531

peter.oloughlin@mutualtrust.com.au