ANREV: Returns for Australian farmland fall to near zero

Income growth remained negative for only the second time since the 2015 inception of the Australian Farmland Index, as lower commodity prices and climatic changes have an impact.

Investment returns from Australian farmland fell to their lowest levels as recorded by the ANREV Australian Farmland Index, reaching almost zero for the 12 months ending September 30, 2023.

The annualized total return for the period was just 0.21 percent, comprising an income return of -2.36 percent and capital growth of 2.58 percent.

This is comfortably the lowest annualized figure recorded by the index since its inception in 2015 and is only the second time the figure has dropped below 8 percent. The first time it did so was in the previous quarter, Q2 2023, when the annualized return stood at 2.01 percent.

The figures have fallen sharply in the last six months following several quarters of low or negative quarterly returns.

The latest quarterly return for Q3 2023 stood at a total -1.66 percent, comprising income returns of -0.47 percent and capital growth of -1.19 percent.

Index contributor Growth Farms Australia said in commentary on the results that the figures showed a continuation of the trend seen in the previous quarter.

“Total annual farmland (crops, livestock) income returns unsurprisingly continued their downward trend for the September 2023 quarter, down 1.76 percent for the quarter and 4.34 percent on an annual basis,” it said.

Growth Farms pointed to falls in lamb and cattle prices that have put pressure on livestock producers, while historically high grain, oilseed and cotton prices, combined with strong yields, have supported croppers.

“Capital returns took a well-earned breather, down 0.42 percent for the quarter, with a number of factors spreading caution including interest rate rises, deteriorating livestock prices and a forecast change in weather patterns following a number of good [seasons],” the firm said.

Annual farmland continued to outperform permanent farmland. Annual farmland achieved a total return of 6.6 percent, while permanent cropping saw a return of -7.2 percent on a rolling 12-month basis.

“Permanent farmland returns continued their downward trend with a 3.17 percent fall in capital [returns] for the quarter and an annual fall of 7.51 percent. Income returns were modest for the quarter at 1.10 percent and negligible for the year at 0.16 percent,” Growth Farms said.

The firm added that both annual and permanent farmland returns should be considered in the context of total returns since the index’s inception in 2015, which sits at 11.57 percent. Growth Farms said this “highlights the commonly espoused diversifying and low correlation characteristics of farmland investments.”

ANREV also pointed to the total annualized return over the last five years, which stands at 9.88 percent, as well as returns over the last three years, which stand at 7.61 percent.

These numbers are also trending downwards, though, as the annualized return since inception stood at 13.13 percent just 12 months ago for the year ending in Q3 2022.

Growth Farms said: “The trend line of the total farmland capital growth index highlights a period of sustained capital growth and its importance to total returns. Resilience can also be built into portfolios with the low correlation between livestock, annual and permanent crop commodity prices, highlighted in this report and over time.”

The Australian Farmland Index is compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) and collates data from 62 properties with a combined market value of more than A$1.98 billion ($1.3 billion; €1.2 billion), of which 45 percent are permanent cropping assets and 55 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.