FARMERS are getting FOMO as agricultural land availability dwindles amid excellent seasonal conditions and commodity pricing, and land prices are expected to climb for at least the next five years as a result, with the sharpest growth to 2023.
In its latest annual Agricultural Land Price Outlook, Rabobank’s “base-case forecast” for the market to continue on a growth trajectory, fuelled by a booming agricultural economy and limited available land for purchase.
“Not in the last 30 years have the macro settings been so supportive” of agricultural land price growth, the report says, with prices of most major agricultural commodities either at, or near, record levels.
This – together with favourable seasonal conditions in the majority of Australia seeing widespread rainfall supporting production – has driven farm revenues to record levels, says report author, Rabobank senior analyst Wes Lefroy.
“Strong production years and high commodity prices, alongside record low interest rates, have boosted farmers’ purchasing power,” he said.
Record cattle prices triggered a number of major landowners to put their assets to the market. Mining magnate Gina Rinehart has just sold three Western Australian properties for $100 million.
Cattle property investment firm Packhorse Pastoral Company is planning to buy $1.5 billion worth of rural agricultural land and build mass-scale land regeneration with carbon upside.
The positive conditions outlook has also seen Macquarie Crop Partners sell its 105,000 hectare Lawson Grains portfolio for more than half a billion dollars to Sydney-based New Forests and Canada’s Alberta Investment Management Corporation.
Rabobank research shows that farmer purchasing intentions are at the highest point in at least the past five years, with 9% of Australian farmers reporting that they intend to buy land within 12 months.
Lack of supply is also playing a role in squeezing agricultural land prices higher, the report says, with 45% fewer sales recorded in 2020 compared with 2019.
“We have observed the ‘fear of missing out’ factor prompting buyers to enter the market earlier than they had planned,” Lefroy said.
In some cases, he said, “FOMO” was prompting buyers to enter an expression of interest for a purchase at much higher than the productive value in order to secure the property, not knowing when another opportunity may arise.
Agricultural land prices across the country accelerated again in 2020, with double-digit growth recorded in median prices in four out of six states.
Tasmania’s median price for agricultural land grew by a whopping 28.3% between 2019 to 2020. In Victoria, it grew by 15.8%, Queensland by 15% and Western Australia by 14.1%.
Growth in New South Wales and South Australia was lower, at 6.1% and 1% respectively.
Nationally, the price grew by 6%.
The ANZ Agri InFocus report showed rural land value growth has been outperforming national residential property value growth by a 3% average for the last five years.
Lefroy said the factors that had supported robust growth in Australian agricultural land prices were forecast to continue. Commodity prices are tipped to remain supportive for the next 24 months, and interest rates to stay at record lows until at least 2024.
The Australian Bureau of Agricultural and Resource Economics and Sciences expects the value of farm production to reach $73 billion in 2021/22, some 8% above last year’s $68 billion record and 17% above the five-year average.
“For land price growth to reduce, or even for a downward correction to occur, we would need to see a multi-year interruption to a combination of commodity prices, production or interest rates, Lefroy said.
There are still purchasing opportunities “for those who do their homework”, according to the report.
“Markets have got tight, but not all are equally tight,” Lefroy said.
“Not all regions have seen prices rise at the same pace and while demand continues to outweigh the number of properties on the market, the demand/supply balance is not the same in all regions.”
The report shows the relationship between price and annual rainfall is not consistent in some regions. Lefroy said seeking out purchases in regions where land price values more closely reflect annual rainfall – and therefore productive capacity – rather than inflated by other factors can provide farmers with more value.
“For those buyers who do their homework and have the flexibility within their business to seek inter-regional purchases, 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 expansion horizons in coming years, prompted by limited opportunities, and variations in the price per unit of rainfall and productive capacity.”