Leading farms deliver drought-defying 12.75pc returns

Top farm investors get dry-defying 12.75pc return as ASX punters sink in red ink


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Australian farmland income and land appreciation returns are down slightly, but still well ahead of US farmland performance

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Despite drought burning a hole in many farm incomes, corporate-scale investors achieved annualised returns of 12.75 per cent from their holdings in the year to September 30.

Overall, farm income and land appreciation returns were down slightly for the 51 properties monitored by the Australian Farmland Index, but the results still soundly beat returns from equities markets, and US agriculture’s similar National Council of Real Estate Fiduciaries Index (NCREIF).

Since the Australian index established in 2015 it has recorded total returns at 13.88pc, with income during that period running at 6.18pc and capital appreciation at 7.42pc.

In the full year to September 30, income from the enterprises monitored dipped by 1.24pc to 5.06pc, reflecting the big dry’s impact on production, while land appreciation was down 2.74pc to 7.49pc.

According to Gunn Agri Partners, which supplies data from its Cunningham Cattle Company to the index, the slowing rate of asset appreciation reflected stabilising valuation trends in the farm sector following several years of big growth.

Agriculture doesn’t generally see negative overall returns, yet equities market slide into negative territory about every seven years - Frank Delahunty, Australian Farmland Index

The index, which monitors a $1.03 billion basket of property investments managed by the likes of Gunn Agri, Rural Funds Management and GoFarm Australia, continued a strong performing theme for agriculture, unlike stock market returns which ended 2018 with a negative performance around -4pc.

It was the Australian Securities Exchange’s worst year since 2011.

“It’s been my argument for a long time that despite its seasonal and commodity market cycles agriculture doesn’t generally see negative overall returns, yet equities market slide into negative territory about every seven years,” said farmland index co-ordinator, Frank Delahunty.

He said although the AFI tracked the performance of top end investors, rather than “mum and dad” farmers or large scale family partnerships, the cross section of farms monitored were representative of Australian agriculture’s capacity.

“The index may be measuring the income and land valuation performance a farm in NSW’s Murrumbidgee which experiences the same weather and market conditions as the family enterprise next door,” he said.

“The big difference is corporate investment managers probably tend to have a more aggressive earnings strategy without some of the  generational or funding constraints assoiated with family partnerships.”

Farm assets tracked by the index include permanent crops such as almonds, annual grain, oilseeds and pulse crops and land used for livestock grazing.

Beating the US

The Australian Farmland Index, which is supported by the US NCREIF index, continued to compare favourably against trends for US farmland which returned 6.82pc, or almost half the local result.

US farm income for the 12-month period contributed 4.41pc, while capital appreciation was just 2.34pc.

Since 1990 the US index has recorded total annualised returns of 12.12pc for permanent cropping land and 10.32pc for annual.

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Mr Delahunty said the NCREIF index established after the investment sector recognised a need for better quality and timely information on the returns generated by agricultural investments over time.

Similarly, the Australian offshoot was proving a valuable step in facilitating an understanding of farm investment returns by institutional and other investors.

Frank Delahunty

Frank Delahunty

It was strongly supported by the agribusiness advisory sector, particularly banks and property services companies.

Good facts for fundies

He said this was the sort of data the recent federal parliament report “Super charging Australian agriculture” had noted was required to improve value in farm statistics sought by Australian superannuation funds, remarkably reluctant investors the sector.

If there’s any other data providing this depth of information on an ongoing basis, I’m yet to find it - Frank Delahunty

While localised farm groups often compiled helpful benchmarking data or consultancy firms had figures on their client base, there was a real lack of consistent ongoing broad scale performance results available publicly.

“If there’s any other data providing this depth of information on an ongoing basis, I’m yet to find it,” he said.

Gunn Agri Partners noted the latest farmland index results highlighted how drought’s impact had been mitigated for many investors via water security strategies used for permanent crops.

Also cushioned from the dry season hit were annual farmland enterprises which had diversified geographically across different climate zones.

Permanent croppers perform

Returns for permanent cropping remained strong with a land appreciation result of 0.49pc, income of 0.81pc, and a total at 1.3pc for the quarter.

For the year to September 30 total returns in the permanent farming category were 17.24pc – up from 10.71pc in 2017.

Land appreciation returns were at 10pc and income of 6.79pc.

On the other hand, annual enterprise returns were down notably on the previous year, with 12-month farmland appreciation dropping from 18.5pc to 4.2pc and income down from 7.8pc to 2.2pc.

 For the September quarter period, permanent and annual farmland returns were 0.78pc, which, despite eastern Australia’s deteriorating seasonal conditions were up on the same quarter in 2017 when they fell into negative territory at -0.21pc.

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