Tuesday, March 21, 2023

Farmland harvest strong returns

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Australian farmland returns totalled more than 15% over the 2021 financial year, as the sector benefitted from strong seasonal conditions and commodity prices.

The latest quarterly Australian Farmland Index from the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) showed income contributed 5.33% and appreciation return 9.36% to the total.

On a quarter-by-quarter basis, total return was 8.82%, driven mostly by capital growth at 7.16% while income return contributed 1.66%

The good conditions and pricing saw annual crop farmland returns skyrocket through the June quarter to 46.27%, posting its best performance since the Index’s inception in December 2015. This was largely driven by capital growth (32.81%), with income return standing at 10.91%.

Annualised returns for permanent farmland improved through the quarter with a 7.93% one-year total return.

A total of 40 properties with a market value of $1.2 billion took part in the Index.

Participant Argyle Capital Partners said excellent farm-gate prices for livestock, grains, oilseeds, sugar and cotton and a surge in production following the breaking of drought conditions throughout calendar 2020 contributed to widespread growth in Australian farm incomes.

The CSIRO will partner with governments and the farming industry and invest more than $150 million to reduce the impact of drought on Australia’s farms, increase the country’s food exports and grow the protein industry.

The gross value of Australia’s agricultural production achieved a record $66 billion in the 2021 financial year, is forecast to achieve $65 billion for 2021/22. Nearly 90% of farmers across the country are tipping the strong business conditions will either continue or improve over the year ahead.

Australian mixed-farming districts and most pastoral regions benefited most from the excellent seasonal condition. Above-average rainfall accumulations across southern Australia’s saw Murray-Darling Basin irrigation storages exceeding 80% capacity by this month, the most amount of water in storage since the 2017 financial year. However, eastern parts of central Queensland have experienced three consecutive years of below-average rainfall.

The growing conditions through the June quarter and into early September have benefitted winter cereal crop production and livestock grazing prospects for the balance of the 2021 calendar year.

Australian winter crop production is expected to exceed 54 million tonnes – 32% above the last 10-year average and the second consecutive year of more than 50 million tonnes production.

Beef, cattle and sheep prices surged to record highs during the first half of 2021 supporting returns for graziers and the pastoral sector, and pushing a number of properties to the market as owners looked to take advantage of the demand.

Farm-gate dairy and sugar prices remain well supported for the 2021/22 season. Strong forward cotton and rice prices are likely to result in a major increase in annual summer crop plantings.

Tree nut enterprises have seen improvements in farm-gate prices, with Australian almond export values improving as a consequence of California’s current drought.

Record low interest rates and a weaker US dollar exchange rate continue to benefit Australia’s export-focused agricultural commodity sector.

Argyle Capital Partners said the impacts of the pandemic have so far been relatively benign for the sector.

“Isolated workforce shortages have led to increased labour costs and challenging logistics have impacted returns for some fresh horticultural exports. Punitive tariffs imposed by China have specifically impacted Australia’s premium and bulk wine sector whilst other commodities have generally readily found replacement export markets across Asia,” it said.

“Record ocean freight rates are also expected to marginally impinge on agricultural export prices.”


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