Australian farmland prices set to sizzle into spring and for years to come

Prices paid this year have risen 25 per cent to set the scene for more land price records to fall during the bumper spring sales.

Australian rural property is no longer cheap, agribusiness banking specialist Rabobank says in its five-year outlook for farm sales released today.

The heat is coming off demand largely because of these still red hot prices and lack of supply.

Prices being paid for Australian cropping land in recent years has outpaced the US, Canada and Western Europe, "but couldn't keep up with the surge in Brazil and the eastern EU's grain export powerhouse, Romania", the report found.

Grazing land prices have also grown more than North America and Europe.

The forecast, provided by Rabobank's research leader, Stefan Vogel, said the new median price being paid for arable farmland across Australia was now $5400 per hectare.

Other land research like that from Elders shows the national median price of farm land is now $7635ha but Rabobank has excluded lifestyle block sales in its analysis.

That median price rose 27pc for grazing, cropping and dairy country in 2021, the research found.

State-by-state analysis unearthed a mixture of results - in Victoria the price of arable cropping land rose a staggering 78pc to above $10,000ha.

Even grazing country in the south rose more than 40pc to over $16,000ha and early results from 2022 sales revealed a further 20pc to 30pc price growth.

MORE READING: Collections of peninsula farms being sold in spring.

In Queensland, grazing land prices jumped by 37pc in 2021 to $2500ha, and for cropping by 60pc to $8900ha, with 2022 sales so far showing further price rises.

According to a Rabobank survey, six per cent of Australian farms intend to buy land in the next year compared with their forecast of 11pc a year ago.

"Prices of most major commodities reached or approached record highs, widespread rainfall supported production volumes, and interest rates were at historic lows," Mr Vogel, RaboResearch general manager (Australia and New Zealand), said.

He said the availability of land for sale had tightened and rising input costs plus interest rate rises are cooling demand.

"The tide is turning slightly as the land market needs to take a breather after the staggering growth over the past 18 months," Mr Vogel said,

But Rabobank still says the five-year agricultural land outlook remains positive and has forecast a double digit rise in values this year.

"The streak of perfect seasons is unlikely to continue," the bank warns, making reference to the historic run of La Nina-induced wet years.

Looking into its crystal ball, Rabobank says climate-adjusted productivity growth remains on the current 20-year trend, with "a potential of one to two years of drier than normal conditions".

Production volumes are unlikely to stay at the current record levels, the bank says.

"Our base case forecast is that land price growth will continue, showing double-digit growth also for 2022 as a result of the strong first half of the year," the Rabobank report says.

"However, for the following years, we predict a substantial slowdown of land prices.

"Commodity prices are likely to stay well above the five-year average for the next one to two years, but costs will likely also exceed their five year average, driven by elevated prices for farm inputs like fertilisers as well as interest rates."

Interestingly, the bank said its analysis of past periods of similar interest rate rises do not show an immediate downturn in farmland values.

But Rabobank says recessions often follow periods of interest rate hikes and during recessions land prices are more vulnerable.

Mr Vogel said only a disaster like a drought or the unwanted arrival of foot and mouth disease could take the steam out of the farm sale boom.

MORE READING: Beef breeding property expected to sell for about $80m.

Rabobank says farm buyers "are not likely to find a cheap gem" anymore.

A fear of missing out has also been driving the market, Rabobank says.

"In some cases, fear of missing out is prompting buyers to enter an 'expression of interest' for a purchase that is much higher than the productive value in order to secure the purchase, not knowing when an opportunity may arise again," the research found.

"Buyers have already scoured the pockets of opportunities.

"Competition is fierce, and while Australian agricultural investments are still attractive to investors from other regions and abroad, the strong growth of land prices compared to other regions makes some investors also look more intensely elsewhere."

Rabobank says it expects foreign interest in Australian farming land will remain strong.

"Investors will continue to be attracted to agriculture, not only because of the competitive returns, but also because the returns are often less volatile and not necessarily correlated to the returns of other asset classes."

Rabobank's state-by-state analysis shows:

New South Wales

Demand has been strong and prices soared with prices mostly set or reconfirmed local records.

Median prices for arable (non-irrigated) land rose 5pc in 2021 to almost $5400/ha. The sales figures so far available for 2022 show further substantial double-digit growth in 2022, with a median above AUD $8000/ha.

The number of farms sold in 2021 is even higher than the very strong figures of 2020 after the drought. Demand for 2022 has remained strong and the floods and planting delays have not slowed demand.

Queensland

Demand has surged as the median price for grazing land jumped by 37pc in 2021 to $2500/ha, and for cropping by 60pc to $8900/ha, with 2022 sales so far showing further price increases.

Well over 400 properties were sold, which is only a slight decrease from last year, but sales are substantially bigger.

Victoria

Median land prices jumped by 46pc in 2021, and 2022 so far shows another 25pc rise. A substantial jump in prices has been recorded across all regions.

The price of arable cropping land rose dramatically, by 78pc to above $10,000ha, and the price of grazing land also jumped more than 40pc to over $16,000ha.

Early results so far for 2022 sales showed for both another 20pc to 30pc price growth.

South Australia

The number of properties sold rose by 14pc in 2021, especially for grazing properties, and has remained strong so far in 2022.

The median price for cropping country fell by 5pc to $5580ha, grazing country prices rose 31pc to $9370.

The median farmland price per ha has grown 10pc in 2021, driven by a 31pc growth for grazing land, but a small decline in cropping land prices.

Yorke Peninsula, Limestone Coast and Lower North showed strong growth in prices per hectare.

Western Australia

A median land price increase of almost 35pc was recorded in 2021. Prices for the available sales data for 2022 are up a further 14pc.

Cropping land prices reached a median of almost $2750ha, up 36pc. The number of properties on the market contracted by 12pc in 2021, while demand remains strong.

"Our outlook for land prices in Western Australia remains extremely strong. High prices and the likelihood of another above-average harvest this season will continue to support demand, as evidenced by the number of farmers intending to buy in the next 12 months, which is at its highest point since at least 2016."

Tasmania

Land prices in most regions continue to rise rapidly. Rabobank recorded a 26pc increase of the median price of grazing and dairy land in 2021 to $18,700/ha.

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