Farmland Index dips again as hort earnings bog down in wet season

In December the rolling 12-month return on the farmland index's current basket of 59 permanent cropping and broadacre farming and grazing properties was down from 10.3pc in September 2022.

However, longer term total annualised returns since the index's inception in March 2015 averaged a respectable 13pc - down just 0.1pc on the previous quarter.

Income returns from the investment grade properties have averaged 5.97pc and capital growth was 6.74pc, according to long term data compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV).

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During the past five years total annualised returns have averaged out at 12.25pc, with income at 5.64pc and capital growth of 6.34pc, and slightly lower over three years with a total return of 11.47pc, comprising income of 5.91pc and capital growth of 5.30pc.

On a quarter-by-quarter basis, last year's farmland index income returns slipped into the red in December at minus 0.30pc, while capital growth was 2.47pc, delivering a total return of 2.16pc for the final three months of 2022.

The horticultural sector weathered a challenging year, noted investor Riparian Capital Partners, which is one of the contributors to the index data bank.

The extended wet cycle and flooding impacted volumes produced and quality, while lingering supply chain (labour and logistics) and export market disruptions also subdued returns across the sector.

This resulted in a second negative total return quarter in ANREV's permanent farmland index figures and reflected challenges across multiple permanent crops from nuts to vines, citrus and soft fruits.

"Positively, the outlook for 2023 is for the horticultural sector to turn around with more stable weather, supply chain and market aspects," noted Riparian Capital in its commentary on the latest farmland index results.

However, with above average in-season rainfall and full soil moisture profiles, water storage levels were at capacity across much of Australia in 2022, leaving major Murray Darling Basin dams at 100pc full by December, compared to 91pc a year earlier.

Overall, Riparian Capital said the year was a bumper one for Australian agriculture, even though the index's averaged results were softening.

A rare confluence of La Nina conditions and high commodity prices pushed the gross value of 2022-23 farm production to a record $90 billion.

Compared to 2021 the gross value of production was up 3pc, with national winter crop production in 2022-23 set to be the second highest on record at 62m tonnes and summer crops in 2022-23 forecast to be well above average.

However, the potential impact of rising interest rates on farmland values could not be ignored, although Riparian noted farmer equity levels had strengthened in 2022 and were at the higher end of decade trends.

"Debt serviceability remains strong," the investment group said.

"This aspect will be a key metric to consider as the cycle tilts towards a drier period and continued inflationary pressure."

The farmland index monitors about $1.78 billion in investor scale property assets, of which 44pc are permanent (horticulture) holdings and 56pc represent cropping and livestock enterprises.

The number of participating properties monitored by ANREV fell by three in the final quarter.

Investor groups contributing farm data from their operations are Argyle Capital Partners, Growth Farms Australia, Gunn Agri Partners, Manulife Investment Management Timberland and Agriculture Pty Limited, Riparian Capital Partners, Rural Funds Management, and ROC Partners.

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