![Farmland Index returns cooling for the first time in eight years Farmland Index returns cooling for the first time in eight years](/images/transform/v1/crop/frm/32XghFRykTWK8psrWNhdBMC/3048ea3e-e1f1-4057-a38e-7c4975c3b3bf.jpg/r0_0_1800_1012_w1200_h678_fmax.jpg)
For the first time since it was established in 2015, the national index monitoring investor grade rural property returns has turned south.
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The Australian Farmland Index's assessment of annualised rolling returns from property earnings and asset valuations dropped to 4.8 per cent for the year to March 30, despite a relatively resilient trend from cropping and livestock enterprises.
The result for corporate-scale investors was well down from December when the index recorded 9.61pc total returns for the 12 months of 2022.
On a quarter-by-quarter comparison, total index returns at the end of March mostly reflected a cooling in property valuations, falling almost 2pc below the December quarter result.
This year's first quarter capital growth was minus 1.87pc while income returns slipped to minus 0.08pc.
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The farmland index tracks earnings and asset valuations from a mix of 58 broadacre cropping and livestock enterprises and permanent horticultural crop holdings producing grapes, citrus and nuts, worth about $1.8 billion.
Properties contributing to the index are managed by investment groups such as Growth Farms Australia, Gunn Agri Partners, Rural Funds Management, Argyle Capital Partners and ROC Partners.
In the period since its first report in March 2015 total annualised returns have averaged a healthy 12.31pc with contributions from income return at 5.78pc and capital growth of 6.29pc, according to data compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles.
Returns halved
However, ANREV's latest annualised results came in at just under half the average return of 9.3pc recorded during the past three boom seasons in Australian agriculture.
Those big years also mostly coincided with big commodity market prices.
The March quarter results slump represented the farmland index's lowest ever one-year annualised return, and followed a deceleration in income and capital value gains in the second half of 2022.
Although annualised cropping and livestock enterprises still maintained double digit returns in the year to March 30, permanent cropping enterprises were negative.
Returns were dampened by soggy harvest results from permanent horticultural crops such as nuts and grapes.
In a commentary about the latest index trends, Argyle Capital Partners noted there was little evidence, to date, of an impact on farm sector borrowing or lending appetite, despite current interest rate rises or the risk of future dry seasonal challenges.
"Traditional bank financiers have remarked on the current strength of farm balance sheets," observed Argyle Capital chairman, Kim Morison.
He noted how 2023 had so far generally seen annual cropping and livestock enterprises continue to reap benefits from idyllic back-to-back seasonal conditions and relatively strong commodity prices.
"Until recently, record livestock values had also promoted strong capital gains in grazing enterprises," he said.
"However, cattle and sheep prices have recently declined by up to 50 per cent since their mid-2022 and mid-2021 peaks, respectively."
Challenging times
Unfortunately for tree and vine crop enterprises, cloudy, windy and wet conditions during the spring of 2022 impacted flowering and fruit sets for permanent crops making 2022-23 very challenging.
"Wet and cool conditions across early summer led to high disease pressure, further impacting fruit loads," he said.
"Harvests were delayed and yields across many tree nut and vine crops were 20pc to 40pc lower than normal.
"Adding insult to injury, farm-gate prices for tree nuts and wine grapes were poor."
Now in the wake of several years of abundant rainfall, farm sector players were bracing for weather conditions to turn full circle.
The Bureau of Meteorology's tip was for a low chance of average rainfall across the majority of the continent in the next few months.
"Partly as a result of that forecast, ABARES recently estimated the gross value of farm production would decline by 14pc in 2023-24 to $79 billion, although it would still be Australia's fourth highest gross value of farm production on record," he said.
"This forecast also incorporates lower global commodity prices."
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