Total returns on corporate farmland investments in Australia are slowing, but still posted a respectable average 10.21 per cent result last financial year.
Latest quarterly Australian Farmland Index results compiled from a $2 billion basket of big scale investor-owned properties showed farm income contributions generated returns of 6.3pc for the year to June 30.
Capital growth on asset valuations was 3.7pc for the period.
That compares with a healthier growth of 7.2pc and 7.1pc respectively for income and capital during the 12 months to April 30.
A year ago the index was showing particularly strong total returns above 15pc for the 2020-21 financial year and capital growth of about 9.5pc, although income growth was weaker than 2021-22, around 5.2pc.
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Notably, valuations have lately dipped into negative territory for land and assets on permanent cropping holdings such as nut, vineyard and avocado properties.
Annualised capital growth on permanent farmland averaged -0.3pc, while income for the year was almost 5.9pc, stablising the overall result for 2021-22 at 5.6pc.
Performing more strongly, thanks to good seasonal conditions and bullish demand for rural property, were annual crop and grazing farmland returns at just over 18pc, although the result was still down on the rolling 12 month average reported three months earlier.
Rural Funds Management, which is one of the investor groups contributing data to the index, said despite some extreme rainfall, high soil moisture content and mild temperatures resulted in "very good pasture production across many eastern states grazing regions, as well as parts of western and southern Australia".
Annual crop and livestock enterprise capital growth was a solid 10.5pc, but well below the 27.2pc reported the previous quarter, while income returns were at almost 6.9pc, also down from 10.3pc three months earlier.
"Australian farmland investing has benefited from two years of high commodity prices and farming profitability, said Rural Funds chief operating officer, Tim Sheridan.
"In recent months we have seen some moderation in all-time-high commodity prices, however they remain high from a historical perspective as demand for commodities remains strong."
The farmland index monitors returns on 63 institutional grade properties with annual broadacre operations representing 44pc of the properties reported, while 56pc are permanent enterprises.
By market value they respectively account for 37pc and 63pc.
Results are compiled by the not-for-profit, Hong Kong-based Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) so that professional investors can fully assess the sector from both an income and capital return basis as compared to other investment classes.
Shy local investors
Coincidentally ANREV's latest data for professional investors comes as a property summit in Sydney was this week told too many local investors still avoided the agricultural market, questioning if farmland qualified as a "proper" asset class.
Proterra Investment Partners managing director, Becs Wilson, said while strong inflows of offshore money from North America and the UK were evident, local institutional investors were still nervous about putting money into agricultural landholdings and upgrading an asset's value and returns.
AAM Investment Group managing director, Garry Edwards, told the Australian Financial Review Property Summit classifying farmland as an "alternative" asset did not help.
He argued there was nothing alternative about food production and it should be a mainstream category investors understood and put money in.
On a quarter-by-quarter basis, the farmland index posted positive income returns of 0.81pc and capital growth of 3.73pc, leading to a total return for the April to June period 4.54pc.
Favourable conditions
Mr Sheridan, noted many commodities produced on properties monitored by ANREV had benefited from increasing global demand, higher prices and favourable growing conditions during the financial year.
This was best evidenced in the significant rise in the value of Australian agricultural exports which hit a record $67.5b for the 12-months to June 2022 - up from around $50b the year prior.
A fall in the value of wine exports, because of China's import ban, represented one of the few exceptions to the broader ag commodity market trend.
A lower Australian dollar also generally helped producers generally given the significant amount of agricultural produce exported each year.
The dollar peaked just over US75 cents in October 2021 and April this year, but has been sliding since, ending the report period just below US69c and lately down to US66c.
Strong export values
Mr Sheridan said higher export values had been recorded across most agricultural sectors, with grain commodities being one of the largest contributors.
This was despite rainy conditions affecting harvesting of grain, cotton and tree nut crops in some areas.
"During the final quarter of 2021-22 rainfall has been above average for much of the eastern mainland, parts of pastoral areas of South Australia, and much of Western Australia," he said.
"High rainfall across many agricultural regions has maintained water storage levels and soil moisture content, and the Bureau of Meteorology has increased the chance of a La Nina to develop in spring to 70pc, providing higher forecast rainfall for much of the country."
Combined with high commodity prices and strong global demand, these factors were providing a positive outlook and confidence in the agricultural sector."
Other businesses contributing farm data to the index include Argyle Capital Partners, Aware Super, Growth Farms Australia, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Investment Group and Riparian Capital Partners
External subscribers who have supported the the Index are ANZ Bank, CBRE Agribusiness, Commonwealth Bank, LAWD Real Estate and Rabobank.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
