Australian farmland returns beat US by more than 10%

Livestock producers were among those who benefited from the uplift, with cattle prices rising nearly 40% in the year to March. 

The investment performance of agricultural estates in Australia surprised on the upside today, when the Australian Farmland Index showed both strong income returns and capital gains.

At 16.89 percent for the 12 months to March, total returns on the index surpassed those generated by its US counterpart, which posted a performance of 6.15 percent. This comprised nearly equal income returns and capital gains, which respectively came in at 8.06 percent and 8.42 percent.

While generating 5.22 percent of income, US farmland struggled to appreciate, gaining only 0.80 percent. Prices are thought to be heading towards a “soft bottom” in North America, however, though profound differences remain between states.

Australian farmland returns were up on the previous year, in particular on the capital gains side, with the comparable figure at 0.94 percent for the year ended Q1 2016. Income returns grew less than 1 percent faster.

“This is reflective of heightened activity within the domestic farmland market over the past 12 months which has seen land prices across all key broadacre and permanent industries rise,” Sackett and Matt Story of Growth Farms, which provides data to the index, commented.

Quarterly performance, however, was less impressive. Q1 2017’s total returns of 0.12 percent comprised a 0.76 percent gain in income returns and a capital depreciation of 0.64 percent.

“Income returns for the first quarter were slightly below the corresponding prior year period. Extremely hot summer conditions across much of eastern Australia have had a significant effect on summer crop yields across both rain-fed and irrigated annual cropping enterprises,” Sackett and Story commented.

Trading conditions were cheerful for livestock producers, though, with prices remaining high throughout the year to March. Cattle prices were 40 percent above rolling five-year averages, while lamb prices ended the period 25 percent above that benchmark.

“The strong annualised income recorded by the index over the past 12 months is largely reflective of this strong market,” the Growth Farms duo said.