Farms yields hit 13 per cent on soaring commodity prices

“If forecast production and prices are realised, Australia is set to harvest its most valuable winter crop ever at a forecast $22.3 billion,” Mr Lenaghan said.

Reflecting cyclical factors and the impact of earlier drought conditions on water costs, total returns from permanent farmland, which includes nuts, citrus and grapes, were a more modest 5.9 per cent over the year to September, driven by capital growth of 4.5 per cent and a 1.3 per cent income yield.

There continues to be a high level of sustained interest from institutional investors looking for exposure to farmland.

— Liam Lenaghan, goFARM

Combining annual and permanent farmland performance – crops with both a one-year life cycle and those that last for many seasons without being replanted – across the index, the total return of Australian farmland on a one-year rolling basis to the end of September was 12.7 per cent, with almost equal contributions from income yield and capital growth.

The index, compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles, tracks the performance of 64 different farming properties owned or managed by Argyle Capital Partners, Aware Super, Growth Farms Australia, goFARM Australia, Gunn Agri Partners, US-based Hancock Agricultural Group and Rural Funds Management (manager of ASX-listed Rural Funds Group).

“The combination of high commodity prices, above-average seasons, and low interest rates have continued to fuel growth in [rural] land values,” Mr Lenaghan said.

“The spring property selling season has seen record land prices paid across Australia with strong demand from established family farming operations looking to expand their operations,” Mr Lenaghan said.

“There continues to be a high level of sustained interest from institutional investors looking for exposure to farmland, which has traditionally been viewed as a safe haven during periods of rising inflation.”

Notable transactions over the September quarter include the $600 million sale of Macquarie Crop Partners’ Lawson Grains portfolio to New Forests and Canada’s AIMCo, the $120 million-plus purchase of part of the Van Diemens Land dairy portfolio in north-western Tasmania by Tim Roberts-Thomson and the Oldfield family’s purchase of Ruby Downs and Sturt Creek in Western Australia’s Kimberley region from Gina Rinehart for around $70 million.

“Current headwinds facing the sector include rising input prices [eg, fuel, fertiliser, chemicals] and concerns about potential shortages in the coming season given the sharp rise in freight costs. However, overall confidence in the rural sector remains very high,” Mr Lenaghan said.