Australian farmland is still generating significantly higher returns than US farmland, according to the latest NCREIF Australian Farmland Index, although returns have begun to show the effects of the extended dry period in eastern Australia.
The total return for the quarter ending September 30, 2018, was 0.78 percent, although this was above the corresponding period in 2017 when returns were -0.21 percent.
This low return is in line with expectations for the period, Gunn Agri Partners said in commentary on the index, as sales receipts are typically low and land valuations are not commonly booked. Most subscribers to the index revalue land on an annual basis in the June quarter.
The annualized total return for Australian farmland stood at 12.75 percent for the year to September 2018. This comprised income of 5.06 percent and land appreciation of 7.49 percent.
Despite the positive annual returns, both figures have declined from the same period to end of September 2017, from 6.3 percent and 10.23 percent respectively, due to the ongoing dry conditions and stabilizing land values. Total returns to the year to end of September 2017 were 16.95 percent.
Total returns also still compare favorably with the US on an annual basis, which recorded a return of 6.87 percent for the year to September 30, 2018, although the gap between each index’s returns since inceptions is far narrower.
Since inception in 1990, the US index has recorded total annualized returns of 12.12 percent for permanent farmland and 10.32 percent for annual farmland. The Australian index has achieved total annualized returns of 13.88 percent since its inception in 2015.
The Australian Farmland Index has also been split into annual farmland (such as crops and livestock) and permanent farmland (such as horticulture) for the past two quarters, with data showing permanent farmland continues to generate higher returns Down Under.
Total returns for permanent farmland in the year to September 30, 2018, were 17.24 percent, up from 10.74 percent in the period to end of September 2017, comprising land appreciation of 10.71 percent and income of 6.79 percent.
Total returns for annual farmland in the year to September 30, 2018, were down year-on-year, though, falling to 6.41 percent, largely attributed to the dry conditions in eastern Australia leading to a drop in production, compared with a bumper year in the 12 months to September 2017.
“Returns for the period to September 30, 2018, started to show signs of the dry conditions and tight water markets in parts of New South Wales, Queensland, Victoria and South Australia. The impact of the drought has been mitigated in many of the investments in the index with water security strategies used for permanent crops and annual farmland diversified geographically, throughout climatic zones,” Gunn Agri Partners said in its commentary.
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.
Growth Farms has temporarily stopped contributing data from the September quarter due to time constraints, but the firm told Agri Investor it intended to contribute again in the future and remains a supporter of the index.