NCREIF: Australian ag returns fall for second successive year in 2018

The latest Australian Farmland Index paints a positive picture for Australian agriculture, although drought conditions in the east are hitting returns in some cases.

Agricultural asset managers in Australia achieved annualized returns of 13.84 percent in the year to December 31, 2018, according to the latest figures from NCREIF’s Australian Farmland Index.

The annualized return figure is up on the last two quarters but down from the same time in 2017 when it stood at 15.87 percent, and down from 2016 when it stood at 18.15 percent, meaning that returns have now declined for a second successive year.

The index recorded a positive quarterly return to December 31 of 4.32 percent, a significant improvement on the quarter to end of September 2018 when returns stood at 0.78 percent. It was also up on the same quarter last year, which saw returns of 3.32 percent.

The ongoing drought conditions in northern and eastern Australia dampened returns for livestock and grazing operations, with annualized returns falling from 6.41 percent in the September quarter to 5.54 percent in the December quarter.

Despite this, investors in Western Australian grain properties saw “near-record yields, good harvest conditions and well above average farmgate prices stimulated by drought-induced domestic grain demand from east coast markets desperate for feed grains and milling wheat,” said Blue Sky Water Partners in a commentary on the index.

Annualized returns for permanent crops continued to perform strongly, with returns increasing from 17.24 percent in the September quarter to 18.14 percent in the December quarter.

“Irrigated farms with associated water rights located in the southern Murray-Darling Basin from 30 percent-plus appreciation in the value of scarce water entitlements in the calendar year,” Blue Sky Water Partners said.

“Two back-to-back years of below-average rainfall and river flows led to tight water supplies and high prices bid to ration that water supply among competing irrigators for the 2018/19 year to date. Horticultural and water asset appreciation reflects the progressive benefits Australia’s agricultural sector has achieved via a raft of bilateral free trade agreements secured over the past decade with large and high-paying Asian import markets.

“In turn this has stimulated a shift in water use from lower-value commodity export crops to higher-value specialty horticultural crops and fresh produce.”

The Australian Farmland Index also continues to perform favorably compared with its US counterpart, which recorded a total return of 6.74 percent for the year ending December 31, 2018.

Annualized returns since inception in 2015 of 14.16 percent, comprising income returns of 6.27 percent and capital appreciation of 7.59 percent.

The index is compiled by the National Council of Real Estate Investment Fiduciaries.

Businesses currently contributing to the index include AAG Investment Management, Blue Sky Alternative Investments, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Investment Group, Laguna Bay Pastoral Company and Rural Funds Management.

The index tracks 42 properties totalling more than A$1 billion ($711.3 million; €627 million) in value.