Tuesday, December 6, 2022

Crops yield strong farmland returns

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Agricultural country

Australian farmland returns continued to outperform, coming in at 12.72% in the 12 months to the end of September, boosted by very strong annual crop farmland numbers.

According to the latest quarterly Australian Farmland Index compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles, income contributed 6.06% and appreciation return 6.38% to the result.

On a quarter-by-quarter basis, positive income return and negative appreciation lead to a total return equalled to 0.

Australian farmland returns had totalled more than 15% over the 2021 financial year, as the sector benefitted from strong seasonal conditions and commodity prices. Income contributed 5.33% and appreciation return 9.36% to the total.

The latest index saw a significant increase in coverage from 40 properties in Q2 to 64 in Q3, amounting to a total market value of $1.78 billion. Annual crop represented 48% of the properties versus 52% for permanent, respectively, 41% and 59% by market value.

Good seasonal conditions and strong commodity prices pushed annualised total returns for annual crop farmland to 41.88%, the second-best performance since the index’s inception in December 2015, as the sector benefited from good seasonal conditions and strong  This was largely driven by capital growth at 26.50%, with income return standing at 12.99%.

Annualised returns for permanent farmland slowed down for the quarter with a 5.85% one-year total return. Annualised capital growth was at 4.46% and annualised income 1.34%.

Agricultural investor, developer and manager goFARM said excellent farm-gate prices for livestock, grains, oilseeds, sugar and cotton and above-average rainfall throughout calendar year 2021 contributed to widespread growth in Australian farm incomes.

According to ABARES, Australia’s agricultural production is forecast to reach a record $78 billion in 2021/22. If forecast production and prices are realised, Australia is set to harvest its most valuable winter crop ever at a forecast $22.3 billion.

The gross value of Australia’s agricultural production achieved a record $66 billion in the 2021 financial year, and 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.

However, recent heavy rainfall has arrived as many farmers commence harvest in eastern Australia with flooding in Northern NSW and significant yield and quality impacts reported across other regions.

The Bureau of Meteorology recently declared that Australia is in a La Niña phase, which correlates with wet conditions across much of the country. This could put more upward pressure on livestock prices – the Eastern Young Cattle Indicator is currently at around a record high of 1,100c per kilogram.

“The combination of high commodity prices, above average seasons, and low interest rates have continued to fuel growth in land values. The spring property selling season has seen record land prices paid across Australia with strong demand from established family farming operations looking to expand their operations,” goFARM said.

“There continues to be a high level of sustained interest from institutional investors looking for exposure to farmland, which has traditionally been viewed as a safe-haven during periods of rising inflation.”

Recent weeks have seen the acquisition of the Woorndoo Aggregation in Victoria’s Western District for about $70 million by two local farming families in separate deals, while ASX-listed Rural Funds Group picked up the 27,879-hectare Kaiuroo cattle and cropping property aggregation in Central Queensland for nearly $69 million, well above the expectation price of $55 million.

Other notable recent transactions include the circa $600m sale of Macquarie Crop Partners’ Lawson Grains portfolio to New Forests and AIMCo, the Roberts-Thomson family’s $120 million purchase of part of the Van Diemens Land dairy portfolio in north-western Tasmania, the Oldfield family’s purchase of Ruby Downs and Sturt Creek in Western Australia’s Kimberley Region for around $70 million,

Headwinds facing the sector include rising input prices for and concerns about potential shortages in the coming season given the sharp rise in freight costs. However, overall confidence in the rural sector remains very high.

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