Investment returns from Australian farmland fell to their lowest level in more than eight years in June 2023, according to the latest edition of the Australia Farmland Index for Q2 2023.
Australian farmland returned 2.01 percent on a 12-month annualized basis, comprising an income return of -1.22 percent and capital growth of 3.21 percent.
This is the lowest 12-month annualized rolling return figure for any quarter since the inception of the Australian Farmland Index in 2015, which is compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV).
The return is also down on the same annualized figure for 12 months earlier, which stood at 10.21 percent for the year to the end of Q2 2022, and is a steep drop from the Q1 2023 annualized return of 12.31 percent.
The figure has fallen sharply due to several quarters of low or negative quarterly returns that have now filtered through to affect the 12-month rolling annualized return.
The latest quarterly return for Q2 2023 stood at 1.73 percent, comprising income returns of -1.52 percent and capital growth of 3.26 percent, following total quarterly returns of -1.95 percent in Q1 2023, 2.16 percent for Q4 2022, 0.10 percent for Q3 2022, and 4.54 percent for Q2 2022. Those figures suggest a strong return will be needed in Q3 2023 to avoid an even lower annualized result in the index’s next reporting period, despite concerns over drier climatic conditions and low livestock prices.
ANREV pointed to the index’s total return since inception as evidence of farmland’s long-term investment value. This figure stood at 12.16 percent over the period from March 31, 2015 to June 30, 2023, comprising an income return of 5.41 percent and capital growth of 6.50 percent.
Over the past five years, the index achieved a total return of 10.42 percent, dropping to 8.95 percent over the past three years.
Gunn Agri Partners, a contributor to the index, said in commentary on the result that “vastly divergent performance” between permanent and annual crop farmland had led to a more modest annualized return.
The annualized return for annual farmland to the end of Q2 2023 stood at 9.90 percent, comprising 11.65 percent income growth and -1.62 percent capital growth. In comparison, the same figure for permanent farmland stood at -6.63 percent, comprising -0.57 percent income growth and -6.17 percent capital growth – both of which are lowest figures on those metrics since the index’s inception.
“The performance of annual farmland over the full year to June has been strong due to high levels of production for both the 2022 winter crop and 2022-23 summer crop, and high grain and oilseed prices,” Gunn Agri Partners said.
“Cropping land recorded a modest reduction with resilience in the market reflecting high levels of producer equity following three successive years of above-average profitability. The contribution from crop farmland values was offset to some extent by weaker livestock prices.”
The return on permanent cropping farmland reflected a cooling off in that sector following a sustained period of high returns, Gunn Agri Partners said, pointing to a 9.26 percent average annual return over the three years prior to June 2022.
“The results highlight the value of a portfolio approach to farmland ownership with current production and price dynamics between permanent crop, annual crop and livestock production systems subject to varying production levels and market drivers,” the firm said.
“While returns were recorded at historic lows, farmland investments have benefited from several seasons of above-trend performance. [The Australian Bureau of Agricultural and Resource Economics and Sciences] forecast on September 4 that Australian agriculture is set to have the third-highest yearly gross value on record in 2023-24, with production value predicted to reach A$80 billion ($51 billion; €49 billion), down from the record high of A$92 billion the previous year.
“The gross value of horticulture production is forecast to rise to A$17.6 billion in 2023-24 driven by higher production, and total Australian winter crop production is forecast to fall by 34 percent to 45.2 million tonnes.”
The Australian Farmland Index compiles data from 63 properties with a combined market value of more than A$1.99 billion, of which 44 percent are permanent cropping assets and 56 percent are annual farmland assets. Its contributors are Argyle Capital Partners, Growth Farms Australia, Gunn Agri Partners, Manulife Investment Management Timberland and Agriculture, Riparian Capital Partners, Roc Partners and Rural Funds Management.