FBIN, Market Insights, News

Rabobank’s annual outlook predicts ‘tempered’ growth for Australian farmland prices

Australian farmland prices are set for slow growth in the year ahead, Rabobank said in its newly released annual Australian Farmland Price Outlook.

The global agribusiness banking specialist said after three consecutive years of “double-digit” growth, the momentum in agricultural land price increases is expected to slow in 2024.

Rabobank also said the price outlook is mixed across sector types and geographical regions.

Rabobank forecasted a “base case” increase of approximately five per cent in the median price per hectare of all agricultural land types nationally in the year ahead.

“Land prices will maintain their growth trend, but not for all sectors and regions,” the report said. 

The bank’s analysis of the median price of agricultural land per hectare nationwide showed that prices grew at a rate of 10.9 per cent.

This was down on the stellar growth rates of 8.6 per cent and 27 per cent seen in 2022 and 2023 respectively.

Report author, RaboResearch analyst Vitor Pistoia said this slowing growth trend in agricultural land prices reflected a “maturing land market”, along with weather challenges and a tighter supply of available properties.

“Australia’s farming sector experienced an unprecedented positive cycle from 2020 to early 2023. Record-high commodity prices and plentiful rainfall supported profitability, which boosted farm business equity and confidence in a brighter future.

“Outside investors joined this booming sector and turbo-charged competition for land, supported by low-interest rates. The land market suddenly had many participants bidding – farmers willing to expand, investors pursuing capital gains and companies looking to invest in the carbon credit sector,” Pistoia said. 

On the flip side, Pistoia said, farmers willing to exit the industry had used the opportunity to sell at rising prices.

Now, he said, the agricultural land market is finishing this cycle and starting a new one, where the number of farms for sale and bidders is lower than before, and the financial outlook for the sector, while overall strong, is not as positive.

The report said while the outlook for key drivers of agricultural land values is still promising for 2024/25, the “upsides are diminishing” compared with recent years. 

Additionally, interest rates remain at an elevated cost, with further increases considered likely and no relief in sight.

“The chance of a La Nina in the second half of 2024 offers a potential tailwind for cropping operations. Beef production is poised to expand on the back of good rains in large swathes of northern Australia.

“Commodity prices are still slightly above historical averages for a number of sectors, albeit down from record highs seen in recent years. Improved cattle prices and a better market outlook also mean grazing land should partially recover its price growth pace,” said Pistoia.

The report said the longer-term outlook for agricultural land prices up until 2029 indicates a further slowing with a gradual reduction in price growth, as buyers seek out the “best value for money”.

“The number of deals based on capital gains rather than economic fundamentals may dwindle as the market matures,” said Pistoia.

However, Pistoia said the forecast is still optimistic.

“The long-term view is crystal clear – farmland is in demand.

“The pivotal point for the land market now is how to properly evaluate the ‘risk-reward’ scenario for such a long-term investment,” said Pistoia.

While the growth rate in agricultural land prices is slowing, Rabobank does not foresee a drop in land values in its forecast.

“A drop in land values would require widespread drought, serious economic hurdles and/or disease outbreak – none of which is on the horizon fortunately,” the report said.

Send this to a friend