S&W Seed Company, a leader in the development of non-dormant alfalfa seed varieties, announced it has entered into a purchase agreement to acquire 640 acres of high quality farmland in Calipatria, Calif., located in California's Imperial Valley. Additionally, the Company has entered into a lease agreement to farm on an adjacent 1,240 acres of land. The total of 1,880 acres of land will be utilized for the production of the Company's proprietary alfalfa seed varieties. The acquisition of the land, which is subject to customary closing conditions, is expected to close prior to the Company's fiscal year end on June 30, 2012.
S&W is acquiring the purchased and leased acreage to enable S&W to better meet demand for its proprietary, non-dormant alfalfa seed varieties. This will be the Company's first major incursion into the Imperial Valley. Alfalfa seed is typically harvested up to two months earlier in the Imperial Valley than it is in the Company's primary growing area in the more northerly San Joaquin Valley,due to hotter climatic conditions. The earlier harvest means that seed destined for Middle East and North Africa ("MENA") countries such as Saudi Arabia can be cleaned and shipped "just in time" for planting, rather than inventoried by S&W or its customers for the following season. The Company intends to plant foundation seed in the fall of 2012, with the first harvest of alfalfa seed expected to begin shipment as early as July of 2013. In following customary crop rotation and seed certification protocols, approximately 75 percent of the acreage is available in year one for seed production, with the remainder to be planted in the following season.
Mark Grewal, chief executive officer of S&W Seed Company commented, "This farmland acquisition is part of S&W's continuing plan to answer increased demand for our alfalfa varieties with increased production. Today's announcement to purchase and lease 1,880 acres of land is the largest to date for the Company. We not only increase our seed output capabilities, but have the potential to improve operating margins and maintain production controls as we farm the land. Farming alfalfa seed in Imperial Valley fits squarely into our long-term strategic plansto diversify our non-dormant seed production in a 'geographically intelligent' way. We are extremely pleased with this land acquisition and lease agreement and will continue to look for additional farmland where we can increase seed production capacity, improve our gross margins and create long term value for our shareholders."
Assuming that the transaction closes as expected, it is anticipated that the purchase price of the 640 acres of land and associated water rights will be $5.5 million, the majority of which will be conventionally financed with a long-term mortgage at current prevailing rates. The initial lease term will be 5 years, with 920 acres available for production in year one, and 1,240 total acres available in years two through five. The Company intends to grow the seed with its own farming team, contract out the farming to existing S&W growers in the Imperial Valley, or use a combination of both approaches.