DOI: 10.25946/28765964
title: Pastoral Grazing Land Valuation:

description: In the need to find the best applied, yet theoretical and normative, income-approach and method 
process to deriving the value for investment purposes, of a pastoral-zone-grazing-enterprise 
(PZGE), and the land it operates upon, in the arid and semi-arid regions of far-western 
Queensland, Australia, a relationship path is chosen. A path that looks deeply at the long-term 
moving-average ratios, looking-through-the-cycle (LTTC), between the livestock-production
ability of the land itself, and its relationship with gross-revenue; and thus, the earnings-before
interest-and taxation (EBIT) cash-flows (or, net-operating-profit-before-taxation): because that 
important EBIT number, is what pays any debt, dividends, capital-expenditure, and taxes. 

This income approach and method of ‘value-of-agricultural-investment-in-land’ (V^2), is how 
the inherent risk in this type of asset investment is priced accurately, and to a high degree of 
probability. The price that emerges is a fundamental-value, or a fair-investment-value (FIV), 
at the ‘point-of-indifference’ (POI), where the buyer and seller can agree, and are price
indifferent as to transacting; where net-present-value (NPV) is equal to zero. 

Flowing-on from pricing the asset as a going-concern, the agistment/rent/leasing amount is also 
discoverable (on an annualised basis): from this same POI metric; where the LTTC, all-risks
yield (ARY) is found: as is the likely affordable, minimum cost-of-debt (kD) in pricing risk. 
The master-key to unlocking both the V^2, as a present-value (PV), and the further derived, 
‘expected-value-of-real-assets-pastoral’ (EVORA-Pastoral) valuation framework (EPVF, a 
Framework), is via the discovery of a unitless, scalar-fractal attractor as a multiple of gross
income, called ‘lambda’ (λ). This λ measures and frames the inherent risk; from seasonal
weather/climate, and the expected produce of annual meat-markets. The λ is derived from
‘two old bankers sayings on debt-leverage’, from around the Federation Drought mid-point (circa 
1901), and the relationship between revenue and live-stock, and between debt and livestock, 
and the loan-to-valuation (LVR) ratios of total livestock value to total asset value, and thus, 
total-assets to total livestock value (all LTTC), and also a mathematical, universal truth. 

This discovery of λ is achieved using different methods, within and via a framework of various 
distilling systems of methodology; covering applied mathematics and statistics, applied
finance and theory of applied-valuation, applied accounting theory and the mathematics of 
management, and economic theory and applied agricultural economics. Some of these methods 
applied are, the Law of Large Numbers, Gaussian versus Pareto (80/20) statistics, time-value
of-money (TVM), present-value (PV), and net-present-value (NPV) in the discounted-cash
flow (DCF) methods for valuing an expected income-stream, and also measures of a market’s 
range of trading: expectations and stability across time, via Time-Series-Analysis, and Monte
Carlo-Simulation. This λ risk-metric, is essential and fundamental to pricing risk, accurately. 

The source sample-data (#1,098-samples, across 61-years), once analysed, was found to be 
completely Right-skewed and non-linear; and part of a dynamical system with many moving
parts. The adoption of the LTTC approach to the data had the effect of removing much noise 
from the analysis and final result, by bringing the data more towards the middle of the likely 
range, and thus made any Pareto, Pearson and Gaussian statistics less volatile, and variable. 

The five (5) key-findings are: a) there is a constant universal relationship between the addition 
of two numbers, and their answer; such that the unitless scalar multiple of λ, can be deduced: 
if a + b = c, becomes λ = c / a = (b / a) + 1: which in turn leads mathematically to, total-assets 
minus total-livestock equals, land plus ‘all-things-necessary’ (LATN); or, (λ2 – λ); b) there is 
an embedded long-term relationship between the gross-revenue, and the value of the land, and 
also the value of agistment/rent/leasing; c) the LTTC, as a central-limit-theorem (CLT) 
approach, is important to remove excess noise from the data; d) to price risk of a PZGE 
correctly, for investment-purposes, an economic FIV is found at the POI; and, e) that an 
appropriate mid-term (i.e. around mid-year-5) level of debt and E(kD) may be targeted, that fits 
within expected cash-flows and likely livestock asset values (if the debt be called upon). 

The likely users, and likely uses, of this V^2 and EPVF income method and framework of 
valuing a PZGE for investment-purposes, and pricing the FIV risk within (LTTC), are 
graziers/farmers, financiers, and professional-services firms such as valuers, lawyers, 
accountants, and other stakeholders focussed on the arid and semi-arid regions, and those 
looking to find value, with an appropriate return on investment, and to compare to the current 
market-price-value (MPV), to quantify the gap-premium, so as not to pay too much, initially. 

The actionable contributions to the gap in the knowledge, in this specialised area of valuation 
theory and applied-valuation are: a) the ability to price the risk in any PZGE, accurately; b) to 
derive an income approach and method (V^2) as part of a larger PZGE valuation framework, 
to find the normative, theoretical, and hypothetical FIV; for both the ‘going-concern’ enterprise 
of total-assets-less-cash (TALC), and the LATN; where the livestock (LSTK) are at PV prices.