CONTRIBUTORSElite AgentRay White

Harvesting hopes: A patchy outlook for farmland values in 2024

Farmland values doubled in the three years to June 2023, however with more mixed agricultural conditions in 2024, it is unlikely we will see such stellar growth this year.

Nevertheless, there is a lot to be positive about with easier financing, better rain and some sectors performing better than last year. 

1. Potential for rate cuts 

A distinct change to the interest rate outlook occurred at the end of last year.

In early December there was a view that we were in for at least one more rate rise.

In mid-December however, a sharp drop in US inflation, followed by the suggestion by the US Federal Reserve that rates could be cut three times in 2024, led to a change in sentiment in Australia.

By the end of December, markets were pricing in two rate cuts for Australia in 2024.

2. Lots of rain and full water storages

We are in an El Niño summer and it was forecast that we would see very hot and dry weather.

This hasn’t eventuated and we have had far more rainfall than expected.

While this has increased the risk of flooding in many areas, it has also been a positive for many farming communities. 

So why the wet weather?

Apparently it isn’t as simple as El Niña being wet and El Nino being dry.

And there is also no guarantee that dryer weather won’t return, but more positively, water storages are full after so much rain. 

3. More positive conditions for beef and sheep than expected

Last year didn’t end well for beef and sheep.

Cattle prices plunged 70 per cent, with the Eastern Young Cattle Indicator (EYCI) hitting a low of $3.49 per kilogram in October.

Sheep prices saw a similar trend.

After hitting $9.75 per kilogram in August 2022, prices plunged to $4.32 per kilogram 12 months later. 

Since then, we have seen a rally in prices.

Part of this has been a stabilisation.

Heavy rain between 2020 and 2022 led to breeding ewe numbers hitting a 16-year high.

The prospect of drought led producers to sell far more cattle and sheep than expected. 

The outlook is now far more positive.

Weather conditions haven’t been as bad as expected and US cattle numbers are expected to decline this year off the back of poorer weather conditions in that country.

Prices are unlikely to hit 2022 highs but will be far better than 2023.  

With Queensland producing the most beef and Victoria the most sheep, these more positive conditions will flow through to farm values in these states. 

4. Crop production remains elevated but will fall from record highs

Australia’s crop production hit a record high in 2023, reaching $57.9 billion by value.

However, this year is looking more subdued, with total value forecast to drop by 21 per cent to $46 billion.

Although this is historically high, the lower value of production is off the back of a fall in global prices and lower levels of production. 

The largest fall is expected in the value of wheat production, which is expected to fall by 40 per cent.

Wheat prices are now significantly lower than they were last year due to strong availability of wheat in Russia.

While a significant drop, it would still be the third highest year on record.

Western Australia produces the most wheat of any state and the strong performance of this grain has contributed to a doubling of farm values in this state over the past three years, one of the strongest increases nationally. 

5. Too few chickens leading to good conditions for poultry farmers

While most livestock is expected to sell for a lot less than it did during the peaks of 2022, the same can not be said for poultry.

While chicken prices have softened slightly, they have remained far more elevated off the back of continued strong demand. 

Part of this is likely to be due to relative affordability of chicken meat relative to other proteins.

With the cost of living so high, many consumers made the switch. 

Around a third of all chicken meat is produced in NSW, with farms mostly located on the Central Coast, Hunter, New England, Riverina and Western Sydney.

Queensland comes in second with large producers around Redland Bay and on farms close to Brisbane. 

6. Global rice shortage positive for Australian rice growing regions

There has been a lot happening with global rice production.

India has imposed export bans on some rice products and increased export duties on the remaining.

As the world’s largest rice producing country, this has caused rice prices to skyrocket.

And although Australia is not a major rice producing country, it is one agricultural sector that is expected to be more profitable this year. 

Most of the rice grown in Australia is concentrated in the Murrumbidgee and Murray valleys of southern NSW.

Small areas of rice are also grown in northern Victoria and northern Queensland.

It is likely we will see an uplift in confidence in these regions in 2024. 

7. No rain in Spain to impact north-central Victoria and north of Perth rural 

Like rice, Australia isn’t a big producer of olives, accounting for just one percent of global production.

However, olive prices have skyrocketed and are now at record highs due to extremely dry weather in the Mediterranean.

This is good news for the parts of Australia where olives are produced such as north-central Victoria and north of Perth. 

8. Better performance of lifestyle properties

Lifestyle rural property prices took a hit in 2022 as interest rates began to increase and the desire for holiday homes reduced as international borders re-opened.

The median price of our most expensive regional areas including the Richmond-Tweed, Southern Highlands and the Illawarra saw prices fall by eight per cent as a result.

Since then, we have seen prices steadily rise.

So much so, prices in the Richmond-Tweed are now back to peak and other lifestyle locations are heading in that direction.

It is likely that by the end of the year, we will see all of these expensive regional areas exceed Covid-era peaks. 

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Nerida Conisbee

Nerida Conisbee is the Chief Economist at Ray White.