The price of Australian farmland is set to experience another year of ‘double digit growth’ in 2022, accroding to the newly-released annual Australian Agricultural Land Price Outlook report by agricultural banking and financial services provider Rabobank.
The report highlighted that “favourable macro forces” continue to “swell (agricultural) land prices” in 2022, following immense growth that was recorded in 2021 resulting in a rise in agricultural land prices across the country by 27 per cent (median price per hectare) that year, with double digit annual growth recorded across all states.
The report also indicates that similarly-strong year-on-year growth has been recorded so far in 2022 across available data set which covers about 30 per cent of the estimated full-year 2022 Australian farm sales. Accordingly, this data indicates growth of above 25 per cent in Australian agricultural land prices so far for 2022, suggesting full-year 2022 sales will easily yield double-digit growth as the size of land deals continues to increase.
Given these figures, the report noted that Australia has managed to outpace many other countries in recent years in terms of growth in agricultural land values.
Report author, RaboResearch general manager Australia and New Zealand Stefan Vogel said that this growth has been driven by a very positive “constellation of factors”, including strong agricultural commodity prices and good production volumes which bolstered the farmers’ cash reserves and driven demand for land purchases.
“For multiple years in a row, the macro settings have been exceptionally favourable for land purchases,” Vogel said. “Prices of most major agricultural commodities hit or moved close to record highs, widespread rainfall has supported Australian production and interest rates have been at record lows.”
While the report has indicated that slower growth in farmland prices is, forecast for 2023 and beyond, it also pointed out that no decline in farmland prices is on the horizon.
“Our base case forecast is that farmland price growth will continue, but we expect a significant slowdown in the rate of growth of prices in 2023 and the years beyond to 2027 from the unprecedented strong growth seen recently,” Vogel said. This view is driven by a declining economic outlook, with higher farm operating costs and lower farm incomes expected in comparison with recent buoyant conditions. In addition, Vogel said that the market could not be expected to sustain a continuation of the massive rates of growth seen in land prices in recent years.
“The tide is turning slightly as the land market needs to take a breather after the staggering growth over the past 18 months, and also given the increased cost of finance and of farm inputs like energy and fertiliser,” Vogel said. “There is also the likelihood of agricultural commodity prices and production volumes in coming years falling short of the exceptionally high or even record levels seen in 2021 and the first half of 2022.”
Vogel said while agricultural commodity prices are likely to stay well above the five-year average for the next one to two years, costs – including for farm inputs such as fertiliser – are also expected to exceed their five-year average, and interest rates are rising.
“However, in our view, a more severe slowing than our base case forecast or a decline in agricultural land prices would require a significant worsening in conditions, like a substantial drought forcing herd liquidation, a multi-year loss of major export markets or the unlikely case of interest rates climbing to the levels last seen in the early 2000s,” Vogel concluded.
