ELD General Discussion, page-316

Shorts on the rise, SP down.

Farmland prices to rise by ‘low double digits’ this year: Rabobank
April 17, 2023
Agricultural land prices will rise by more than 10 per cent this year, but growth will be well down on the near 30 per cent increases recorded in 2021 and 2022, according to a new report from agribusiness lender Rabobank.On the back of three consecutive seasons of strong financial performance for Australia’s farm sector – driven by high commodity prices and good weather conditions, the bank forecast “low double-digit” percentage growth in agricultural land prices for the year ahead.While a decline in agricultural land prices is not forecast, Rabobank said in its latest Australian Agricultural Land Price Outlook that a significant slowdown in the pace of price growth was is expected from 2024 potentially through to 2028.The slowdown in price growth will be driven by reduced appetite from farmers to buy land due to a combination of already sky-high farmland prices, higher interest rates and the expected onset of an El Nino drier period, which may reduce agricultural yields.Demand for farmland remains strong after three consecutive years of good profits. “Commodity prices are likely to remain at good levels for farmers for the next one-to-two years. However, the drier forecast may result in lower yields and reduced margins, while rising interest rates will curtail long-term investment plans,” said RaboResearch agriculture analyst Vitor Pistoia.“Currently, cash already available in the system and stocks of grains and livestock ready to enter the market remain the key factors driving land price growth.”The Rabobank outlook comes as the Department of Agriculture (ABARES) forecast a record of $90 billion of agricultural production this financial year (including $75 billion of exports).This is expected to fall 10 per cent in 2023-24 to $81 billion due to the impact of drier conditions. While a relatively sharp fall, an $80 billion-plus annual farmgate is still considered a very strong outcome for the agricultural sector given the sector averaged about $70 billion in the three-to-four years before COVID-19.Analysts at ABARES said farm businesses were in a “strong cash position” due to high domestic and international commodity prices over the last few years and bumper production.“However, if agricultural commodity prices fall over the medium term more rapidly than expected, or if input costs start to rise rapidly again, it would put increasing pressure on farm profits,” the ABARES analysts said.Presently though, many farmers are still in a very strong financial position given three consecutive $80 billion agricultural production years and vastly improved balance sheets due to 20-30 per cent annual price surges over the past two years.According to ABARES, average farm income for broadacre farms (farms practicing large-scale crop operations) is expected to average $983,000 this financial year and generate profits of $228,000 – compared with $294,000 in the 2022 financial year and $192,000 in the 2021 financial year.
Rabobank has a more bullish outlook for land prices than rural group Elders, which believes single digit increases are more likely this year.
However, Rabobank comes to the same conclusion as the Elders that the boom in land prices which took off in 2020 following the end of the drought, has likely run its course, though neither expect prices to decline (as they have in the residential and office markets).Rabobank’s latest land price outlook report, supported by farmland sales data from Digital Agricultural Services and excluding lifestyle rural property sales, shows agricultural land prices across the country rose by 29 per cent (median price per hectare) in 2022.Cropping land increasing by 29 per cent, livestock grazing land by 26 per cent and dairy by 29 per cent.On a state-by-state basis, NSW recorded a year-on-year increase of 19 per cent taking the average price per hectare to average $9401.Median land prices in Victoria jumped by 28 per cent in 2022 after a massive 40 per cent increase in the prior year.Queensland average land prices rose by 20 per cent last year, while South Australia recorded the highest growth in agricultural land prices of all states, a gain of 34 per cent.In Western Australia, prices paid for farmland reached a record high of $6000 per hectare last year, after a 22.5 per cent increase.