Farming's good times is luring younger fans back to the family business

Younger family members are being drawn back to family farms by the good times in agriculture, according to a respected real estate veteran.

This has encouraged many businesses to draw on equity and reinvest in more land which has been driving up prices.

Col Medway, a senior director of LAWD, says looming interest rates would not dampen this demand despite today's red hot farmland market.

Record commodity prices have combined with a run of good seasons to provide unprecedented profitability across agriculture.

The buoyant rural economy has provided an generational opportunity to take advantage of record low bank interest rates to expand family landholdings, Mr Medway said.

Most economic analysts now believe the RBA will lift interest rates mid-year prompted by rising inflation.

"We are likely going to see a rate increase of 25 to 50 base points over the next period but, really, all good businesses should be able to withstand a rise of 300 points," Mr Medway said.

"We also know banks are already stress testing loans at a rate higher than is currently applicable," he said.

"I don't think interest rate rises are going to stop people purchasing land because they remain historically low."

He said a notable development in this buoyant market was a number of institutional investors were seizing the opportunity to cash in their large aggregations.

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Mr Medway said these big farm portfolios were being "deconstructed" and sold back to family enterprises who were "well-positioned" to pay premium rates.

The trend, which Mr Medway said had grown over the past five years, has seen investment funds splitting up their aggregations rather than selling as a single asset "to capture greatest return".

"De-aggregation", as Mr Medway called it, had met the objectives of both institutional vendors and family farm businesses.

"What we have seen is a number of transactions where funds have done their jobs and aggregated properties to grow efficiencies and, when those funds have come to the end of their life, some of these aggregations have been broken up and sold back to multiple local producers.

"There is clearly less transactional risk and complexity with one contract, however funds are now happy to take on multiples because it is delivering the highest sale price and return for their investors."

Mr Medway predicts these funds will return to the Australian farmland market

"They will use these sales as evidence of the success of their strategy for capital deployment to raise more for re-entry to the market."

US investor Proterra Investment Partners recently sold its Corinella portfolio of 49 farms covering 22,386 hectares in Victoria and South Australia for $370 million to 27 individual buyers.

Some sales of large aggregations were still "best suited" to complete asset transactions such as the $580 million sale of Macquarie Asset Management's 103,006ha cropping aggregation, Lawson Grains, to Alberta Investment Management Corporation.

"This is an example where we had an immense amount of local enquiry on individual properties in both New South Wales and Western Australia, however the most efficient transaction for the vendor in this case was to go with another institution," Mr Medway said.

"The key point to make here, though, is that family and local enterprises had every chance to participate in that sales process and had a genuine opportunity to compete.

"Our strong advice to all of our vendors in this current climate is they would be mad to exclude any part of the market as potential buyers."

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