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Australian farmland returns hit two-year high – ANREV

The ANREV Australian Farmland Index recorded strong capital appreciation in Q2 2021, with annual farmland continuing to outperform permanent farmland.

Investments in Australian farmland achieved their best return for two years in the year ending June 30 2021, according to the latest edition of the ANREV Australian Farmland Index.

The total annualized return on investment in Australian farmland hit 15.07 percent in Q2 2021, comprising an income return of 5.33 percent and capital appreciation of 9.36 percent. This represents a significant bounce back after the total annualized return of 8.46 percent in Q1 2021, and is also an improvement on the total annualized return of a year ago, which stood at 12.81 percent in Q2 2020.

Continuing a trend seen for the last several quarters, annual farmland has continued to outperform permanent farmland.

The annualized return for annual farmland for Q2 2021 was 46.27 percent, the highest figure since the Australian Farmland Index began in December 2015. Capital appreciation was the main driver for this, contributing 32.81 percent, with income returns adding 10.91 percent.

The result reflects continuing strong demand for Australian farmland that has seen prices continue to rise. Rural Bank’s Australian Farmland Values 2021 report, published in May, found that the median price per hectare of Australian farmland increased by 12.9 percent in 2020 to A$5,907 ($4,596; €3,809) per hectare. This brought the 20-year compound annual growth rate to 7.6 percent.

The result is also a partial reflection of the fact that most investors undertake annual independent valuations of their assets in June each year, before the end of the financial year in Australia, with many likely to have been revised upwards in value.

Annualized returns for permanent farmland also improved quarter-on-quarter, rising to 7.93 percent, comprising capital appreciation of 3.63 percent and income returns of 4.19 percent.

The total quarterly return for Q2 2021 stood at 8.82 percent, with capital appreciation of 7.16 percent accounting for the vast majority of the growth.

In commentary on the index results, contributor Argyle Capital Partners said that Australian farmland continued to “outperform”.

“Excellent farmgate prices for livestock, grains, oilseeds, sugar and cotton, and a surge in production following the breaking of drought conditions throughout calendar year 2020 contributed to widespread growth in Australian farmland incomes to 30 June 2021,” the firm said.

“Australian mixed-farming districts and most pastoral regions benefited from excellent seasonal conditions throughout the 12-month period to 30 June 2021. Above-average rainfall accumulations across southern Australia resulted in Murray-Darling Basin irrigation storages exceeding 80 percent capacity by September 2021 – the most amount of water in storage since 2016-17. However, eastern parts of central Queensland have continued to experience three consecutive years of below-average rainfall.”

Ideal growing conditions

Argyle Capital Partners said that ideal growing conditions through the quarter and into Q3 2021 have benefited winter crop production and livestock grazing prospects for the rest of the year. Strong forward cotton and rice prices, combined with the high availability of water, are likely to result in significant increases in plantings of those crops, with the price of almonds also rising as a result of the drought in California.

The covid-19 pandemic has been “relatively benign” to Australian agriculture, the firm said.

“Isolated workforce shortages have led to increased labor costs and challenging logistics have impacted returns for some fresh horticultural exports. Punitive tariffs imposed by China have specifically impacted Australia’s premium and bulk win sectors, while other commodities have generally readily found replacement export markets across Asia,” it said.

“Reflecting continued optimism in the sector, the demand for Australian farmland and agribusinesses remains very strong.”

The Australian Farmland Index compiled data from 40 properties in Q2 2021 with a market value of more than A$1.2 billion ($879 million; €744 million).

The contributors to the index are Argyle Capital Partners, Aware Super, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Investment Group and Rural Funds Management.

The index is compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles, which took over management of its compilation in 2020 from the US-based National Council of Real Estate Investment Fiduciaries.