News & Analysis

Australian ag returns leave US in dust despite slowdown

'Good seasons and good commodity prices' have buoyed the NCREIF Farmland Index but don't expect high-teen returns to last, says Growth Farms' David Sackett.

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The performance of Australian farmland investments remains on a stellar track despite a fall since Q4 2016, according to the National Council of Real Estate Investment Fiduciaries.

The organization’s Australian Farmland Index showed a total annualised farmland return of 15.87 percent for the last quarter, compared with 18.15 percent at the end of Q4 2016. This broke down into an income return of 4.3 percent and an appreciation return of 11.31 percent.

Frank Delahunty, co-ordinator of the Australian Farm Index, told Agri Investor that this return represented “a strong investment” despite the slight slowdown.

In particular, the Australian index compared favourably with the NCREIF US Farmland Index, which recorded a total return of 6.19 percent for the same period to the end of December 2017.

On a quarterly basis, the Australian Farm Index rose to 3.32 percent in Q4 2017 from -0.21% in Q3 2017, consisting of 1.44 percent income return and 1.89 percent appreciation return.

The growth was driven by strong demand for broadacre and permanent cropping properties, with avocado, citrus, nut and table grape properties experiencing particularly strong demand, according to NCREIF.

Normalization

David Sackett, managing director of Growth Farms, which contributes data to the Australian Farm Index, said the returns in the last 12 months have been “exceptional.”

“It’s been underpinned by good seasons and good commodity prices,” he said. “But I don’t expect to see that amount over 10 to 15 years. Our view is that you’re more likely to do 10 to 12 percent net growth.”

Future performance depends on commodity prices and land values, Mr Sackett said.

“The key question is whether we will see growth in land values, and that really will be driven by farmer profitability. If you’re a sheep farmer, it’s likely you’ll do well. But if you’re in the northern row-cropping regions, the last year was pretty tough.”

Blue Sky, goFARM Australia, Rural Funds Management, AAG Investment Management and Hancock Agricultural Investment Group also contribute data to the index.