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Australian farmland returns hold steady in Q3 2021 – ANREV

Annual farmland continues to strongly outperform permanent crops in the Australian Farmland Index, with strong commodity prices helping returns across the board.

The return on investments in Australian farmland remained strong in Q3 2021, rising slightly from the same period a year earlier as booming commodity prices contributed to strong yields.

The total annualized return for all farmland stood at 12.72 percent on a rolling annual basis as at September 30, 2021, comprising an income return of 6.06 percent and capital appreciation of 6.38 percent, according to the latest edition of the ANREV Australian Farmland Index.

This is slightly down from a two-year high of 15.07 percent seen in the previous quarter, but is slightly higher than the 12.35 percent seen in Q3 2020.

As in several recent editions of the index, annual farmland continues to strongly outperform permanent farmland.

The total annualized return for annual farmland in Q3 2021 stood at 41.88 percent, the second-highest return since the index’s inception in 2015. This comprised capital appreciation of 26.5 percent and income returns of 12.99 percent.

The return for permanent farmland was much lower, at 5.85 percent, comprising capital appreciation of 4.46 percent and income returns of 1.34 percent.

The index also saw a significant increase in coverage in Q3 2021, adding 24 properties to take the total covered to 60 with a combined market value of A$1.78 billion ($1.3 billion; €1.1 billion). Annual farmland represents 48 percent of the index by volume and 41 percent by market value, with permanent farmland making up 52 percent by volume and 59 percent by value.

In commentary on the index, contributor goFARM Australia said: “Excellent farmgate prices for livestock, grains, oilseeds, sugar and cotton, and above-average rainfall throughout calendar year 2021, contributed to widespread growth in Australian farm incomes to September 30, 2021.

“The gross value of Australia’s agricultural production is forecast to reach a record A$78 billion in 2021-22. If forecast production and prices are realized, Australia is set to harvest its most valuable winter crop ever at a forecast A$22.3 billion. However, recent heavy rainfall has come at poor timing for many farmers commencing harvest in eastern Australia, with flooding in northern New South Wales and significant yield and quality impacts reported across other regions.”

The declaration of a La Niña phase by Australia’s Bureau of Meteorology, which historically correlates with wet conditions across much of the country, could see further upward pressure on livestock prices, goFARM said. The Eastern Young Cattle Indicator is already at record highs of around 1,100 c/kg.

“The combination of high commodity prices, above average seasons and low interest rates have continued to fuel growth in land prices. The spring property selling season has seen record land prices paid across Australia with strong demand from established family farming operations looking to expand. There continues to be a high level of sustained interest from institutional investors looking for exposure to farmland, which has traditionally been viewed as a safe haven during periods of rising inflation,” goFARM said.

“Current headwinds facing the sector include rising input prices and concerns about potential shortages in the coming season given the sharp rise in freight costs. However, overall confidence in the rural sector remains very high.”

The contributors to the index are Argyle Capital Partners, Aware Super, goFARM Australia, Growth Farms 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.