Australian farmland annualized returns hold steady despite negative Q1 2023

Investment returns from Australian farmland held steady on an annualized basis to the end of Q1 2023, although recent quarterly results look more negative, according to the latest figures from the quarterly Australian Farmland Index compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles.

ANREV recorded that the annualized return to the end of March 2023 was 12.31 percent, comprising an income return of 5.78 percent and capital growth of 6.29 percent, slightly down on the annualized return to the end of Q4 2022 of 13 percent and below the return of 14.68 percent achieved to the end of Q1 2022.

Despite returns holding relatively steady, the index saw a negative return of -1.95 percent on a quarterly basis, comprising an income return of -0.08 percent and capital growth of -1.87 percent. This was the lowest quarterly result since the index’s inception in 2015.

ANREV said the index had recorded a total annualized return of 11.71 percent over the last five years, dropping to 9.35 percent over the last three years.

In commentary on the index, participant Argyle Capital Partners said that performance of Australian farmland investments had “moderated considerably” during Q1 2023, with permanent cropping enterprises suffering a negative performance over the previous 12 months in contrast with continuing double-digit annualized returns for annual cropping and livestock businesses.

“Annual cropping and livestock enterprises continued to benefit from idyllic back-to-back seasonal conditions and relatively strong commodity prices,” Argyle Capital Partners said.

“In general, farmers in these sectors have been able to pay down debt and recover losses from the prior drought periods to 2020. Traditional bank financiers have remarked on the current strength of farm balance sheets. To date, there is little evidence of the impact of rising interest rates on the lending appetite for the agricultural industry; however, this cannot be discounted given some challenges in the current climate and commodity price outlook.”

Argyle added that precision planting techniques and improvements in plant varieties, soil health and plant nutrition had also led to strong productivity gains in annual cropping.

On permanent cropping, Argyle noted that several enterprises had recently completed annual harvests, including in the almonds, wine grapes, table grapes and macadamia sectors, following a “very challenging” 2022-23 growing season.

“Cloudy, windy and very wet conditions during spring 2022 impacted flowering, leading to lower fruit sets. Wet and cool conditions across early summer led to high disease pressure, further impacting fruit loads. Harvests were delayed and yields across many tree nuts and vine crops were 20-40 percent lower than normal. Adding insult to injury, farmgate prices for tree nuts and wine grapes were poor,” the firm said.

Compounding this, Australia’s Bureau of Meteorology has lowered its outlook for median rainfall in July and August 2023, predicting a low chance that average rainfall will be achieved across most of the country due to the combination of a developing El Niño in the Pacific Ocean and a positive Indian Ocean dipole.

Argyle said: “Partly as a result of that forecast, ABARES [the Australian Bureau of Agricultural and Resource Economics and Sciences] recently estimated the gross value of Australian farm production to decline by 14 percent in 2023-24 to A$79 billion ($52.6 billion; €49.1 billion). This forecast also incorporates lower global commodity prices. It represents a decline from an expected record 2022-23 result but would still be Australia’s fourth highest gross value of farm production on record.”

The Australian Farmland Index is published quarterly and comprises 58 separate farmland assets with a combined market value of more than A$1.83 billion. 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.