Sunday, December 3, 2023

Farmland returns defy COVID and trade tensions

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Australian farmland
Photo: Pixabay

Total return of Australian farmland for the year ending March was 8.46%, with annual crop farmland returns particularly strong and exceeding the long-term average on the back of good season conditions and strong commodity prices.

According to the latest quarterly Australian Farmland Index from the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV), annualised total returns for crop farmland for the quarter to the end of March totalled 25.34%, exceeding the 17.56% return seen in the same period last year, and the return since the Index’s inception in December 2015 of 18.87%.

This was largely driven by capital growth at 15.26%, with income return standing at 8.88%.

Annualised returns for permanent farmland, on the other hand, were modest. The 3.08% one-year total return compared with 13.00% a year earlier and was short of the total return since the Index’s inception of 12.00%.

While annualised capital growth of -1.20% dampened total return, annualised income return grew by 4.32%.

The total return of Australian farmland included income contributing 5.15% and appreciation return 3.17%. On a quarter-by-quarter basis, total return amounted to 0.88%, driven mostly by income return at 2.03% but moderated by a -1.16% appreciation return.

A total of 39 properties took part in the Index, with a market value of $1.06 billion.

Chief operating officer of Rural Funds Management (RFM), Tim Sheridan said near record rainfalls at the end of last year, above average rainfall for the majority of the March quarter across most of Australia and a good outlook for rain in 2021 has kept confidence in the agriculture sector high.

“Australian agriculture has continued to perform relatively well despite the ongoing disruption of the pandemic, the higher Australian dollar and the trade issues with China. This is reflected in the ongoing uplift in annualised farmland values, as the demand for agricultural property remains high.”

The latest Rabobank quarterly survey showed farmers believe 2021 is shaping up to be an “instrumental” year in the long-term prosperity of the Australian farming sector, with almost 90% expecting the strong business conditions to either continue or improve over the year ahead.

Commodity prices were the primary driver of confidence, cited by 69% of farmers expecting conditions to improve. Seasonal conditions buoyed sentiment among 51% of farmers who had a positive outlook on the year ahead.

Farmers’ assessments of their own business viability edged higher again to sit at a new record 20-year high.

Last year saw Australia receive the fourth highest December rainfall on record. Soil moisture profiles improving again early this year to above-average in most major crop regions aided larger harvests and encouraged the planting of winter crops resulting in the second-biggest on record, which will contribute to a record forecast of $66 billion of gross value production.

“Within the cattle sector rainfall has aided pasture growth and, with an above-average rainfall outlook, has reinvigorated producer demand. Slaughter numbers remain low indicating that producers are still restocking and/or growing out cattle. These factors have contributed to farm gate prices remaining high,” RFM said.

While the Australian dollar reached a high of 80 cents in February, it remained relatively stable and finished the period close to where it began, at 76 cents, up from the low of 57 cents 12 months prior.


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