This article is from the Australian Property Journal archive
THE one-year rolling return of Australian farmland has moderated, although heated competition for agricultural assets will push up land prices by more than 20% in 2022 before growth begins to taper in 2023.
According to Rabobank’s latest Australian Agricultural Land Price Outlook, preliminary data shows growth of more than 25% in Australian agricultural land prices so far in 2022.
“This suggests full-year 2022 sales will easily yield double-digit growth,” said Stefan Vogel, RaboResearch general manager for Australia and New Zealand.
The report also showed the size of land deals is also continuing to increase, with 9% of grazing and 6% of farm sales higher than $10 million in 2021.
Rabobank’s analysis shows median agricultural land prices per hectare surged by 27% in 2021, with all states seeing double-digit growth. Grazing land was up 33% and dairy country 40%. By state, the biggest jumps were in Victoria, where cropping land values skyrocketed by 78% and grazing land by 42%, while in Queensland they were up 63% and grazing land 37% respectively.
“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.”
Price growth is expected to slow down from next year, driven by a declining economic outlook, higher operating costs, and lower farm incomes, but no decline is expected in the foreseeable future.
“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.
Meanwhile, the total return of Australian farmland on a one-year rolling return for FY22 was 10.21% with contributions from income return of 6.32% and capital growth of 3.70%, according to the latest quarterly Australian Farmland Index compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV).
On a quarter-by-quarter basis, positive income return of 0.81% and capital growth of 3.73% led to a total return of 4.54% for the last quarter of 2022.
The one-year rolling total return to the end of March was 14.68%, driven by near-equal contributions from income return and capital growth, while it was more than 13% over 2021.
The Index amounts to 63 properties for a total market value of $1.95 billion, with annual crop representing 44% of the properties versus 56% for permanent, and respectively 37% and 63% by market value.
Annualised total returns for annual crop farmland dropped to 18.09% from the previous quarter, driven by capital growth at 10.55%, with income return standing at 6.89%. Permanent farmland returns were stable, with a 5.60% one-year total return, where the annualised capital growth was -0.29% and annualised income at 5.87%.
Rural Funds Management chief operating officer, Tim Sheridan said Australian farmland has benefited from two years of high commodity prices and farming profitability.
“In recent months we have seen some moderation in all-time-high commodity prices – however they remain high from a historical perspective as demand for commodities remains strong.”
Throughout the year many agricultural commodities produced by Australian farmers benefited from increasing global demand, higher prices and favourable growing conditions, and the value of agricultural exports which rose to a record $67.5 billion for the 12-months ended 2022, up from around $50.0 billion.
High rainfall across many agricultural regions has maintained water storage levels and soil moisture content, resulting in very good pasture production across many grazing regions in the eastern states, as well as parts of western and southern Australia. However, the conditions have affected the harvesting of grain, cotton and tree nut crops in some areas.
The Bureau of Meteorology has increased the chance of a La Nina to develop in Spring to 70%, providing higher forecast rainfall for much of the country.
