Farm enterprise investor groups reap big rise in returns

Farm Online - Andrew Marshall

Farm operating incomes delivered an 8.5 per cent return for 2016 according to the Australian Farmland Index.

Investors in agricultural property achieved, in theory, a hefty 16.4 per cent return on their money last year, according to latest data from the Australian Farmland Index.

Reflecting a bullish 12 months for agricultural earnings across many sectors, farm operating incomes delivered an 8.5 per cent return for the year, while rising land values contributed just under 8pc.

The results are calculated after analysing the financial performance of 57 different farms monitored for the index.

Those farming operations are part of a $1.1 billion property portfolio producing a wide range of commodities from nuts and fruit to broadacre grain and cotton crops, wool, red meat and poultry –  and in a diverse range of locations in Australia.

They are properties owned or managed by investment groups Growth Farms, Blue Sky, goFarm Australia, Rural Funds Management, AAG Investment Management and the Hancock Agricultural Investment Group.

The result for last year was notably better than the –  still respectable –  2015 index average return of  of 9.3pc (which was based on a slightly smaller property portfolio).

Back in 2015 land values only appreciated by 2.5pc and farm incomes averaged a more restrained 6.8pc increase.

The index, which is based on a similar long-running rural property earnings evaluation of US farmland, has more than two years of data and a growing portfolio of investment properties on which to base its assumptions.

Co-ordinator, Frank Delahunty, said the strong influence from cattle market returns and a kick in land and water values were notable contributors to the 2016 results.

“The seasonal turnaround in southern Australia was also quite good last year, helping farm returns and flowing through to movement in land values,” he said.

“But we know agricultural earnings and land valuations run in cycles, particularly if seasonal conditions swing noticeably one way or the other.”

However, he noted while launching the Australian index publicly late last year that during 30 years in the managed farm sector investment sector he had only seen agriculture’s overall performance dip into negative twice.

That contrasted with the share market which anticipated a loss cycle every six or seven years.

The farmland index, published quarterly, is based on the actual income and capital returns from institutional grade quality assets.

The new service uses independently audited results to measure agricultural investment property performance just as the daily stock market’s results are monitored by the All Ordinaries Index.

In the US the National Council of Real Estate Investment Fiduciaries (NCREIF) has been operating the same sort of investment property index since 1990 when it started keeping tabs on 197 farms worth $336m.

It now has about 730 holdings worth $7.8 billion on its books.

At last year’s launch, Australian Farm Institute executive director, Mick Keogh, strongly supported the farmland index saying it “will help and encourage investors to include the sector as an important component of a balanced investment portfolio”.

It could provide an important indicator of the performance of the Australian agricultural sector on a regular basis.

Mr Delahunty said the index had attracted a lot of interest and supportive comment from the investor sector.

He hoped the number of participating businesses contributing data would take the total asset value to near $2b in the next six months or so.

As the number of farms in the index increased results could be segregated to identify trends in different locations and sectors.