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Slower growth ahead for Australian farmland

Australian farmland prices are set for further growth in the year ahead, but the pace is going to slow down, according to the latest analysis.

Rabobank’s Australian Farmland Price Outlook predicts that after three consecutive years of double-digit growth, the momentum in agricultural land price increases is expected to slow down in 2024, as farm profitability levels come off record highs.

Rabobank has forecast a base case increase of about five per cent in the median price per hectare of all agricultural land types nationally in the year ahead.

However, the outlook is mixed across different states and regions.

Land prices surged 10.9 per cent in 2023, on the back of 28.6 per cent and 27 per cent growth in 2022 and 2021.

RaboResearch analyst Vitor Pistoia said the slowing growth trend in agricultural land prices reflected a “maturing land market”, with a less bullish outlook for farm profitability, along with weather challenges and a tighter supply of available properties.

“Australia’s farming sector experienced an unprecedented positive cycle from 2020 to early 2023,” Mr Pistoia said.

“Record-high commodity prices and plentiful rainfall supported profitability, which boosted farm business equity and confidence in a brighter future.”

He said outside investors had also added to the booming sector, with low interest rates also providing a solid floor.

“The land market suddenly had many participants bidding – farmers willing to expand, investors pursuing capital gains and companies looking to invest in the carbon credit sector,” he said.

On the flipside, Mr Pistoia said, farmers willing to exit the industry had used the opportunity to sell at rising prices, adding to the supply of land available for the increased demand.

According to Mr Pistoia, the agricultural land market is finishing this cycle and starting a new one, where the number of farms for sale and bidders are lower than before.

The financial outlook for the sector, while overall strong, is not as positive as it once was.

Last year agricultural land prices reflected a “tale of two industries”, according to the report, with the median price for arable (cropping) land rising 20 per cent, while grazing land remained virtually stable, with the median price slipping 0.3 per cent.

The report said dairy land prices also showed strong price growth, increasing 22 per cent in 2023.

Mr Pistoia said the contrasting price movements across the different land types reflected the fortunes of the sectors during the year, with cattle and sheep commodity markets suffering a considerable decline.

The data analysed indicated the number of agricultural land deals fell in 2023, with national sales declining 35 per cent. 

This ranged across states with sales transactions down 43 per cent and 44 per cent respectively in Western Australia and Victoria, but only six per cent in South Australia, according to the analysis.

“Large deals – with sales above the $10 million threshold – also declined, down 33 per cent year-on-year and about in line with the decline in all farm sales,” Mr Pistoia said.

Agricultural land price movements varied across the country in 2023, the report found, with year-on-year growth in the median price per hectare in NSW (six per cent), Queensland (four per cent), South Australia (one per cent) and Tasmania (eight per cent).

Western Australia was a stand-out – the only state to surpass national median agricultural land price growth, with a 48 per cent increase in the year.

At the other end of the spectrum though, Victorian agricultural land prices declined overall – by eight per cent – “primarily impacted by the ebb and flow of the sheep and cattle markets,” the report said.

Mr Pistoia said overall agricultural land price growth in 2023 had been “more supported by the equity that had been built in past years than the profitability outlook for the farm sector”.

“Rainfall in a number of areas in the country along with the price of many commodities has not been as good as before, which undoubtedly impacted farmer margins. Farm input prices have come down, but not enough to compensate for the reduction in incomes,” he said.

The report says while the outlook for key drivers of agricultural land values – including production volumes, commodity prices and farm income – are still promising for 2024/25, the “upsides are diminishing” compared with recent years. 

“Some regions might see a decline in winter crop production on the back of a dry start of the season,” Mr Pistoia said. 

“But the chance of a La Nina in the second half of 2024 offers a potential tailwind for cropping operations. Beef production is poised to expand on the back of good rains in large swathes of northern Australia.

“Commodity prices are still slightly above historical averages for a number of sectors, albeit down from record highs seen in recent years. Improved cattle prices and a better market outlook also mean grazing land should partially recover its price growth pace.”

The longer-term outlook for agricultural land prices – for 2024 to 2029 – indicates a further slowing, the report said, with a gradual reduction in price growth, as buyers seek out the “best value for money”.

But the forecast is still optimistic.

“The long-term view is crystal clear – farmland is in demand,” Mr Pistoia said.

And while the growth rate in agricultural land prices is slowing, he does not foresee a drop in land values in its forecast.

“A drop in land values would require widespread drought, serious economic hurdles or disease outbreak – none of which is on the horizon fortunately,” he said.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.