Capital appreciation on Australian farmland lowest since March 2016 – NCREIF

Income returns strengthened significantly despite the fall in capital returns, due to strong export demand for Australian products.

The capital appreciation return for Australian farmland almost halved in the 12 months to the end of March 2020 on an annualized basis, according to the latest edition of the NCREIF Australian Farmland Index.

Capital appreciation returns fell from a high of 10.19 percent in Q1 2019 to 5.21 percent in Q1 2020, the lowest figure for capital appreciation on an annualized basis since March 2016.

Income returns were stronger, though, driven by strong livestock prices aided by a weak Australian dollar. The income return for the 12 months to end of March 2020 was 9.26 percent, compared with 5.66 percent a year earlier.

Total return on investment on an annualized basis dipped slightly to 14.91 percent in Q1 2020, down from 16.21 percent in Q1 2019. The overall return figure is still above the average annualized return since the inception of the index in March 2015, which stands at 14.31 percent.

Rural Funds Management chief operating officer Tim Sheridan said higher-than-average temperatures in 2019 had continued into the first quarter of 2020, but rainfall in the eastern states and the Northern Territory had also been higher than average, leading to a positive impact on cropping operations and providing support for livestock prices as restockers sought to rebuild herds following the drought.

“The late onset of the northern wet season, combined with a historically low national cattle herd, saw tightened supply and further supported farm gate prices, particularly for young cattle and breeding stock,” he said in a commentary on the index.

“The hot and dry conditions were also experienced by almond growers in the early part of the quarter, however it did not negatively impact production. Despite rainfall having some impact on the harvest in April, and the expected lower yield due to the record production of last year, almond yields remained good.”

Sheridan added that Australian agriculture had fared “relatively well” so far during the coronavirus pandemic.

“The longer-term effects of the pandemic remain unclear, although we expect Australian agriculture to remain resilient and continue to perform well,” he said.

“Furthermore, it is possible that the demand for agricultural property will continue to remain buoyant because of the low Australian dollar, low interest rates and a positive outlook on operator profitability driven by a favorable seasonal outlook.”

The index’s quarterly return for Q1 2020 stood at 4.26 percent, comprising 4.85 percent income return and a negative appreciation return of -0.59 percent.

This still compared well with corresponding figures for US farmland, NCREIF said, which saw an annualized return for the 12 months to end of March of 3.98 percent, comprising appreciation of -0.26 percent and income of 4.25 percent. NCREIF also recorded a -0.10 percent total return for farmland during the three months ending in March, the first negative quarterly return in that index since 2011.

The AFI is compiled by the National Council of Real Estate Investment Fiduciaries using data from 37 properties that have a combined value of more than A$766 million ($535 million; €470 million), of which around 61 percent is permanent horticultural crops. The balance of the index comprises annual farmland enterprises including grains, oilseeds, pulses and livestock grazing.

The number of properties counted in the index fell from 47 in the previous quarter, accounting for around A$200 million in value, because of changes in management responsibilities preventing data being provided, NCREIF said. NCREIF hoped the data will be included again in the next quarter.

This also prevented it from publishing a split between annual and permanent farmland returns as it normally does.

Contributors to the index include Argyle Capital Partners, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Investment Group, Laguna Bay Pastoral Company and Rural Funds Management.