Farmland’s golden run ends as prices fall 3.9pc in six months
The median price of a hectare of farmland fell 3.9 per cent over the first half of 2023 as the combined headwinds of higher interest rates, lower commodity prices and predicted drier El Niño conditions took their toll, a new report by Rural Bank has found.
This decline, which reflects the change in the national median price between the second half of 2022 and the first half of 2023, followed two-and-a-half years of price growth during a post-drought period of record harvests and high commodity prices.
On Rural Bank’s preferred measure of year-on-year price changes (comparing the first half of 2023 with first half of 2022) median farmland rose just 0.1 per cent – a sharp turnaround from the previous four half-yearly periods, which each saw year-on-year growth of between 16 per cent and 23 per cent.
Lower commodity prices (including beef) have begun to affect rural property values. Bloomberg
Rural Bank considers a year-on-year comparison a more accurate reflection of price movement because a different mix of properties sells over the two halves of the calendar year.
Regardless of period, the latest update of the Australian Farmland Values Report shows the golden run of steep price growth has ended and a new era of flat or declining farmland prices has begun. Performance will, of course, fluctuate across regions depending on local drivers of demand and the agricultural sub-sectors in those markets.
The report also reveals a massive slowdown in deal activity – the number of transactions in Australia between January and June was 40.2 per cent lower than a year earlier and 27 per cent lower than the second half of 2022.
“Farmland transaction volumes are the lowest in a generation as potential vendors sit tight, and more caution is exercised by purchasers weighing up their options,” Rural Bank senior insights manager Greg Kuchel said.
This caution was being driven by a combination of falling commodity prices, drier forecast conditions and the prevailing view that interest rates would – “at the very least” – hold around current levels for some time, Mr Kuchel said.
On a national basis, price growth slowed dramatically or went backwards depending on how it was measured. But farmland performance diverged sharply on a state-by-state and region-by-region basis.
Western Australia (up 15.1 per cent to $4740 per hectare), NSW (up 14.1 per cent to $8649)and South Australia (up 12.9 per cent to $6892) had the strongest year-on-year growth in the first half of 2023.
However, in Victoria median farmland prices rose just 2.9 per cent year-on-year to $13,035 per hectare, a rapid slowdown from four consecutive halves with year-on-year growth of over 20 per cent.
Farmland prices fell 3.1 per cent in Queensland year-on-year to $7,822 per hectare and crashed 24.7 per cent in Tasmania to $14,034 per hectare (though this was largely confined to the state’s north, where values fell 50 per cent year-on-year.).
Performance also diverged sharply between farm types. In cropping regions, price growth generally kept pace with recent years on the back of a strong 2022 winter crop, while in grazing regions, where demand for land was weakened by declining livestock prices, land values went backwards in numerous instances.
As an example, median prices on South Australia’s northern region rose 83 per cent over the half-year (203 per cent year-on-year) to $4832 per hectare, the biggest increase of any region due to a “substantial rise in median prices across cropping properties in particular”.
By contrast, the 50 per cent fall in Northern Tasmania median prices to $9,005 per hectare reflected the predominance of low-value grazing property sales over the period.
Looking ahead, the major drivers of farmland values – commodity prices, seasonal conditions and interest rates – would trigger less demand for land purchases and were expected to remain less favourable for price growth in the second half of 2023, the Rural Bank report said.
”Dry conditions brought on by an El Niño, which will contribute to lower crop production, coupled with below-average livestock prices will see reduced farm incomes compared to recent years,” it says.
“In addition, interest rates are set to remain at or near the current level, further hampering buying power. As a result of reduced demand, farmland values are expected to remain steady or moderately decline across the second half of 2023.”
Alongside falling or flatlining farmland prices, the June quarter update of The Australian Farmland Index (which tracks the performance of a $2 billion portfolio of blue-chip properties) showed annualised total returns fell to an eight-year low of just 2 per cent.
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