Drought sees Australian farmland returns dip in Q2 2019 – NCREIF

Farm income returns dropped to their lowest level in four years as dry conditions persist in eastern and northern Australia, but annualized returns remain steady year-on-year.

Drought is continuing to influence investment returns from Australian agriculture, with the total annualized return dropping to 12.49 percent in Q2 2019.

The figures, compiled by the National Council of Real Estate Investment Fiduciaries in its Australian Farmland Index, show that farm income returns have fallen to their lowest level on an annualized basis since the survey launched in March 2015, dropping to 4.12 percent this quarter.

Annualized land appreciation returns also dipped from the previous quarter, falling from 10.19 percent to 8.14 percent, but were still significantly higher than the 6.55 percent seen a year earlier in Q2 2018.

The overall annualized return has held up reasonably well, too, with the 12.49 percent figure seen this quarter still above the 11.64 percent returns achieved in Q2 2018.

Quarterly returns were also up, with the sector achieving a total return for the quarter of 4.35 percent, comprising a 1.19 percent income return and 3.16 percent appreciation return. This was above the 2.35 percent total return achieved in Q1 this year, but well down on the 7.80 percent achieved in the same quarter in 2018.

Appreciation returns for the quarter were dominated by annual cropping enterprises, according to commentary on the figures provided by goFARM Australia, recording returns of 9.72 percent in comparison with just 1.0 percent by permanent cropping. This was likely due to revaluations taking place at the end of the financial year, as well as a reduction in sales of permanent cropping assets.

Permanent cropping led income returns for the quarter, though, helping achieve a 1.43 percent total return for Q2. This was above the 0.43 percent return across annual farmland in the quarter, possibly due to the harvest of some permanent plantings such as almonds occurring in autumn, while annual cropping enterprises will be mid-season and are thus unlikely to see income generated.

“While such returns are positive, they are down from the same quarter last year,” goFARM Australia said in its commentary. “This is likely due to the enduring dry conditions, which have been experienced across most of eastern and northern Australia and have continued into spring.

“Many farmers are now being forced to make tough decisions about cutting crops for hay or persisting in the hope of late-season rain. Drought-driven livestock sales continue, with limited demand from restockers but strong demand for finished stock. This is setting up an interesting time for the livestock sectors as African Swine Flu spreads through Asia, potentially creating a global shortfall of protein.”

GoFARM also cautioned that water prices in the Murray-Darling Basin remain high due to low allocations and high demand from irrigators, while the impact on Australian agricultural exports from the US-China trade war remained uncertain.

The Australian Farmland Index is compiled by NCREIF and covers 50 properties totaling more than A$1.14 billion ($769 million; €701 million) in value.

Annualized returns since the index’s inception in 2015 are 14.19 percent in total, comprising 6.01 percent income returns and 7.88 percent capital appreciation returns.

Businesses currently contributing to the index include Argyle Capital Partners (formerly Blue Sky Water Partners), AAG Investment Management, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Investment Group, Laguna Bay Pastoral Company and Rural Funds Management.