Rabobank, an agribusiness banking specialist, predicts that Australian farmland prices will continue to climb for at least the next five years, with the strongest growth through 2023.
In its recently released 2021 Farmland Price Outlook report, backed by Digital Agriculture Services (DAS), Rabobank describes a “baseline forecast” for the Australian heated farmland market to continue on a growth path. This will be fueled by a booming agricultural economy and limited land available for purchase.
According to the report, macroeconomic parameters have not been so favorable to the growth of farmland prices for 30 years, with prices for most major agricultural products reaching or near record levels.
In addition to favorable seasonal conditions across much of Australia with widespread rainfall supporting production, this has driven farm incomes to record highs, said Wes Lefroy, senior analyst and author of the Rabobank report.
“Strong years of production and high commodity prices, along with record interest rates, have boosted the purchasing power of farmers,” Lefroy said.
Nationally, our research shows that farmers’ buying intentions have been at their highest for at least five years, with 9% of Australian farmers saying they intend to buy land within 12 month.
The lack of supply also plays a role in the rise in prices of agricultural land, with 45% fewer sales recorded in 2020 compared to 2019.
Median price growth
Farmland prices across the country accelerated again in 2020, with double-digit growth recorded in median prices in four of the six states.
The median price of farmland in Tasmania increased by 28.3% between 2019 and 2020, in Victoria by 15.8%, in Queensland by 15% and in Western Australia by 14.1%.
Growth in New South Wales and South Australia was weaker, with those states recording median price growth of 6.1% and 1% year-on-year, respectively.
Nationally, the median price of farmland in Australia rose 6% through 2020.
The fundamentals to remain united
The factors that have supported the robust growth in Australian farmland prices are expected to continue.
“We believe it is likely that commodity prices will remain favorable over the next 24 months, while we expect interest rates to remain at record highs until at least 2024,” Lefroy said.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) expects the value of agricultural production to reach $ 73 billion in 2021/22, an impressive 8% above the last year’s record $ 68 billion and 17% above the five-year average.
“For land price growth to decrease, or even for a downward correction to occur, we would need a multi-year hiatus from a combination of commodity prices, production or interest rates.” , Lefroy said.
FOMO among farmers
The report says a shortage of farmland available for purchase has contributed to “Fear of Running Out” (FOMO) among farmers and added upward pressure on market prices.
“Following the peak in farmland sales in 2019, the number of properties on the market has declined in 2020 and even more in 2021 so far,” said Lefroy.
“Across the country, the pipeline of sales entering the market is historically very weak, which presents a glaring lack of buying opportunities. We have seen the fear of missing out factor causing buyers to enter the market earlier than expected. “
In some cases, FOMO has prompted buyers to grab an expression of interest in a purchase at a much higher price than productive value to secure the property, without knowing when another opportunity might present itself.
According to the report, the difficulty of the challenge faced by buyers competing in a pool of deep demand, but low supply should not be underestimated. However, there are still shopping possibilities for those doing their homework.
“Markets have become tight, but not all are equally tight,” Lefroy said.
“Not all regions have seen prices increase at the same rate and although demand continues to outweigh the number of properties in the market, the supply / demand balance is not the same in all regions. . “
For the first time, this year’s report includes an assessment of land price relative to annual rainfall, revealing that the relationship between price and annual rainfall is inconsistent in some areas.
Seeking purchases in areas where land prices more closely reflect annual rainfall – and therefore productive capacity – rather than inflated by other factors can provide more value to farmers, Lefroy said.
“For buyers who are doing their homework and have the flexibility within their business to seek cross-regional purchasing, there may be greater productive value to be had for their capital investment,” he said.
“We expect to see an increasing number of farmers broaden their horizons for expansion in the coming years, due to limited opportunities and variations in the price per unit of rainfall and production capacity. “