ANREV: Australian farmland returns rise in Q4 2022 to hit 13%

The total annualized return for Australian farmland up to December 2022 was 13 percent, show the latest figures from the ANREV Australian Farmland Index.

The total annualized return figures for Q2 (10.21 percent) and Q3 (10.32 percent) were among some of the lowest recorded by the index since its inception in 2015, after they fell from their most recent high of 14.68 percent in Q1 2022.

The annualized return for Q4 2022 of 13 percent comprised an income return of 5.97 percent (up marginally from 5.81 percent in Q3 2022 but down from the 7.22 percent recorded in Q4 2021) and capital growth of 6.74 percent (up from 4.32 percent in Q3 2022 and up on the 5.62 percent recorded in Q4 2021).

On a quarterly basis, ANREV recorded an income return of -0.30 percent and capital growth of 2.74 percent, leading to a total return of 2.16 percent for Q4 2022. This is up from the Q3 2022 total return of 0.10 percent.

Riparian Capital Partners, one of the contributors to the index, said the results showed “strong returns from agricultural assets printing a 12-month rolling return of 9.61 percent.”

“With ABARES [the Australian Bureau of Agricultural and Resource Economics and Sciences] forecasting national winter production 2022-23 to reach the second highest on record at 62 million tonnes and strong pricing, it is not surprising that annual crops are currently driving the continued growth in the farmland index.

“Permanent crop returns were muted with the effects of the extended wet cycle depressing income and capital growth as volumes and quality were impacted. As the data period of the index extends the more typical long term seasonal cycles are becoming clearer.

The latest outlook report from ABARES said cash income across all broadacre farms in Australia is set to decrease by 7 percent in the 12 months to the end of June 2023, following heavy rainfall and flooding in the country’s eastern states.

Incomes on farms are set to drop in all Australian states except Western Australia and South Australia, thanks to a combination of adverse weather events, higher input prices and lower commodity prices than recent years, ABARES said.

However, farm incomes remain 46 percent above the 10-year average, reflecting a period of generally favorable climatic conditions across the country following several years of drought.

Riparian Capital Partners added in its commentary on the ANREV index that “planting of summer crops in 2022-23 is forecast to be well above average, supported by high soil moisture levels and significant areas of land left fallow during winter due to high rainfall impacts.

“Conversely the horticultural sector has weathered a challenging year with the extended wet cycle and flooding impacting volumes produced and quality. Combined with lingering supply chain (labor and logistics) and export market disruptions the returns across the horticultural sector have been subdued and this is showing up in a second negative total return quarter for the ANREV Permanent Farmland Index.

“The challenges have been across the permanent farmland complex – from nuts to vine crops to citrus and soft fruits. Positively, the outlook for 2023 is for the horticultural sector to turn around with more stable weather, supply chain and market aspects.”

The Australian Farmland Index tracks the performance of 59 farmland properties with a market value of more than A$1.78 billion ($1.18 billion; €1.12 billion), of which 44 percent are in the permanent cropping sector and 56 percent in annual farmland (cropping and livestock). Data is contributed by Argyle Capital Partners, Growth Farms Australia, Gunn Agri Partners, Manulife Investment Management Timberland and Agriculture, Riparian Capital Partners, Roc Partners and Rural Funds Management.

Additional reporting by Daniel Kemp.