Farmland returns fall below 1pc as rate rises, weak beef prices bite

The weak September update – comprising income returns of negative 0.47 per cent and capital value declines of 1.19 per cent – followed the index’s June quarter update, which showed a total annualised return of just 2 per cent.

However, as with previous quarterly updates, there was a sharp divergence between the performance of annual and permanent farmland.

Annual farmland delivered a 6.6 per cent total annualised return, as a negative 4.3 per cent income return was offset by capital growth of 11.4 per cent

In the case of permanent farmland, it delivered an annualised total return of negative 7.3 per cent, made up of an income return of 0.16 per cent and a 7.5 per cent fall in capital values as sectors such as vineyards were hit especially hard due to a glut of grapes and the China trade tariffs.

A negative income return does not mean that investors received no income. Rather, it means that the income they received over the quarter was down on the previous quarter.

Growth Farms Australia said the 1.8 per cent quarterly and 4.3 per cent annual decline in farmland income returns was an unsurprising continuation of a downward trend.

It noted that the key indicators for both lamb and cattle – the Trade Lamb Indicator and the Eastern States Young Cattle Indicator – had fallen sharply since January, by 49 per cent and 61 per cent respectively.

“These falls have put enormous pressure on livestock producers,” said Growth Farms.

On the other hand, 2022-23 summer and 2023 winter crops have supported the index with historically high grain, oilseed and cotton prices and good yields.

A decline in farmland capital values was driven by a number of factors, including interest rate rises, deteriorating livestock prices, and a forecast change in weather patterns following a number of good seasons, Growth Farms said.

Central NSW rural property valuer Craig Johnstone from Herron Todd White said during 2023 there had “clearly been a softening in value levels and the general up-and-up trajectory we experienced over recent years has changed”.

“Many sales occurring throughout 2023 surprised valuers and, more often than not, demonstrated a clear softening in value levels,” he wrote in HTW’s December market report.

Amid falling returns, the total value of agricultural produce is forecast to reach $78 billion this financial year, down 17 per cent from the record $94 billion achieved in fiscal 2023, according to the Department of Agriculture.

Average cash income for broadacre farms is forecast to decrease by 64 per cent to $113,000 this financial year, generating an average loss of $62,000.

However, most farmers should be in an overall sound financial position, having generated profits of more than $500,000 over the two previous financial years and benefiting from a surge in asset values providing plenty of equity on their balance sheets.