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The drought has broken

The drought has broken and agricultural land values are growing strongly which further underpins our growing agriculture credit book

  • Key farming regions across eastern Australia are enjoying their best season in decades as rainfall drives production and confidence in one of Australia’s key industries.
  • Importantly, many other parts of the world are experiencing poor rainfall and hot conditions which will underwrite robust commodity prices that could result in high prices and good production for Australian farms.
  • Farmland values were up 12.8% in the June quarter from March (Australian Farmland Index)
  • With over 25% of the Partners Fund exposed to agriculture, the diversification benefits of this asset class in the face of the COVID-19 pandemic is proving to be the differentiator between our strategy and other mortgage funds.


For the majority of eastern Australia’s farming businesses, the drought has broken, and record crop production is forecast for the 2020/21 season. This comes after three years of dry weather, high water prices, bushfires and general uncertainty facing the sector.

As the chart shows below, key farming regions across northern Victoria and NSW have gone from record low rainfall to the highest rainfall on record in some regions.

In contrast Europe experienced the hottest Summer and early Autumn on record. The charts below show other key cropping areas of the world are suffering from the La Nina weather patterns which is driving below average rainfall and warmer conditions. These suboptimal conditions in other parts of the world will keep a bid under agricultural commodity prices and allow Australian farmers to experience a well needed boost to their balance sheets as they market record crops.

Rural Bank’s recent Australian Farmland report showed strong property price appreciation, particularly in Victoria and NSW. Data collected since 1995 shows land continues to rise, with a Compounding Annual Growth Rate (CAGR) of 8.6% for land sizes >150 hectares. The number of transactions (sales) continues to reduce as the operators with scale expand and drive greater efficiency of production and management systems.

Farmland has also proven to be uncorrelated to broader financial markets during recent volatility, further supporting our agricultural lending thesis

We continue to seek opportunities to grow our agricultural investments, doing so within the safety of our credit driven process which applies conservative LVRs. The weighted average LVR across our agricultural portfolio is 55% with a material buffer on each individual investment, protecting our capital from loss.

While macroeconomic forces in 2020 have been largely positive, driven by fiscal policy, we continue to seek opportunities to achieve yield while ensuring capital preservation. By growing our agricultural lending portfolio, we are diversifying the risk and return profile of the Partners Fund and giving investors access to an investment class that is not otherwise readily available.

Portfolio Update

In general, the portfolio is performing extremely well with ample liquidity in the economy driving settlements of apartment pre-sales and appropriate exits for other subsectors of commercial loans. However, we remain extremely vigilant about the potential for a post-pandemic credit cliff and as a result we have been quick to move on loans where we feel the sponsor does not have the where with all to deliver the project. In this context we have appointed a receiver on a land loan in Box Hill in Melbourne and expect the borrower will either refinance swiftly or the asset will be sold to one of the many property developers who have expressed interest in the site.