After five years of strong gains, little growth is forecast for agricultural land prices over the next 18 months as east coast farmers focus on drought recovery and the economic slowdown weighs on farm revenue and confidence.
After notching up healthy compound annual growth rate of 8.8 per cent over the last five years – concentrated in 2017 and 2018 – Rabobank’s index for farmland prices rose a more modest 5 per cent in 2019. And from this year, land markets will enter a new phase, according to the lender’s latest Australian Agricultural Land Price Outlook.
“The aggressive rise in land prices is behind us, and we are expecting a period of low, if any, growth in 2020,” the report’s author, Rabobank agricultural analyst Wes Lefroy said.
“Ultimately though, this will vary by quality, region and production type.
“If agricultural land prices can hold the significant gains they have made over the pastfive years in the year ahead, through the worst economic crisis we are facing in decades due to the coronavirus pandemic, this will be a great result for landholders.”
Such is the diversity of agricultural land markets, though, that marquee sales were still likely to take place in some districts, especially for high-rainfall properties with scale. However, median agricultural property prices in some regions may contract over the coming 18 months, the report said.
Any decline would not be major, though, thanks to macro-economic factors including low-interest rates and the expected weakening in the Australian dollar – along with the overall healthy state of farm balance sheets across the country, it said.
The report notes that the impact of drought on land prices can be delayed, with low or zero growth in prices even as rainfall improves.
“In drought-affected regions, there has been a shortage of properties on the market with many potential sellers choosing to hold off until conditions improved, and this reduced supply had been supportive of price growth,” Mr Lefroy said.
“However, as seasonal conditions have improved, we will see an increased stream of lower-quality properties come to the market, with sellers trying to take advantage of the high price environment.”
Prices for agricultural commodities are expected to decline over the next 18 months on the back of weakening demand as the economy contracts and government stimulus is reduced, the report noted.
The economic impact of the pandemic will weigh on the cotton and wool markets and farmer confidence more broadly. Agricultural exports could also be further impacted by the increased tensions between Australia and China, the report noted.