Australia permanent crops offset drought-hit annual cropping returns

The NCREIF Australian Farmland Index, which is heavily weighted to permanent cropping, shows total returns held up fairly well despite drought across much of eastern and northern Australia.

Farmland returns in Australia were largely flat year-on-year in Q4 2019, with strong performance from permanent crops offsetting a drought-affected year for annual cropping.

The latest figures compiled by the National Council of Real Estate Investment Fiduciaries in its Australian Farmland Index, shows that farm income returns stood at 13.01 percent on an annualized basis, slightly down on the 13.84 percent recorded in the 12-month period to the end of Q4 2018.

The figure comprised an income return of 5.15 percent (down from 5.49 percent a year earlier) and an appreciation return of 7.86 percent (down from 8.01 percent a year earlier).

The result was also slightly below the annualized return of 14.32 percent since the inception of the Australian Farmland Index in March 2015.

Annual crop farmland saw a drop in returns in 2019 after a drought-hit season in much of eastern Australia. The total return for the year was 9.82 percent, including a negative income return of -0.57 percent and property appreciation of 10.51 percent.

This was significantly below the annualized return for annual crop farmland since the AFI’s inception, which stands at 16.38 percent.

In contrast, permanent crop farmland achieved a total annualized return of 14.33 percent, comprising income of 7.08 percent and appreciation of 6.87 percent.

Gunn Agri Partners managing partner Brad Wheaton said in commentary on the index that the difference in performance can be explained by strong demand for permanent crop commodities such as almonds, citrus and grapes, combined with a weaker Australian dollar propping up the competitiveness of exports.

The quarterly return for Q4 2019 stood at 3.08 percent, up from the low of 2.36 percent seen in the previous quarter but down from the 4.32 percent recorded a year earlier in Q4 2018.

“While farm income had been negatively affected in some regions of eastern and northern Australia throughout 2019 due to drought, the assets reported in the index are geographically diversified and a combination of predominantly irrigated permanent crop and rain-fed enterprises. These factors have contributed to the index reporting returns for the December quarter in line with long-term trends,” Wheaton said.

He added that performance in subsequent quarters is expected to improve further after rainfall in many drought-affected regions in recent weeks.

The AFI is compiled using data from 47 properties that have a combined value of more than A$1.1 billion ($650 million; €602 million), up from A$594 million when it was launched in 2015. Around 73 percent of the index is weighted to permanent crops, with the balance comprising annual farming enterprises that produce grains, oilseed, pulses and livestock.

Contributors to the index include AAG Investment Management, Argyle Capital Partners, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Investment Group, Laguna Bay Pastoral Company and Rural Funds Management.