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While farmland values have dropped nationally for the first time in two years, agribusiness brokers are reporting strong demand.
According to Rural Bank’s midyear Farmland Values Report 2023, which analyses farm sales across the country, the number of farmland transactions continued to decline in the first half of the year, reaching its lowest level in the past 28 years.
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Australia witnessed a 40.2 per cent drop in the number of transactions compared to the previous year and a 27 per cent decrease from the second half of 2022.
Furthermore, the median price of farmland in the first half of 2023 was only 0.1 per cent higher than a year earlier, marking a 3.9 per cent decrease from the previous quarter.
This marked a distinct shift from the previous four half-yearly periods, each of which saw year-on-year growth ranging from 16 to 23 per cent.
However, it also indicates a return to the trend, with an average first-half decline of 3.1 per cent recorded in the five years prior to 2021.
The report noted that the median price of farmland in Australia typically declines in the first half of a calendar year compared to the second half of the previous year due to seasonal and industry factors. However, this year is described as an “inflection point”.
While the overall trend indicates a lack of growth in land values, demand likely sustained into early 2023 following a strong winter crop in 2022.
As business demand has held steady, Katherine Pilkington, co-founder at Countrywide Finance Solutions, noted lending demand had been increasing.
Smaller businesses with returns under $1 million have seen a lot of acquisition, while those over $1 million are opting for refinancing.
Ms Pilkington explained that clients are seeking better deals from lenders, especially due to the increased interest rates and business costs.
In many cases, she observed the lender’s interest rate is “well above” the interest rate for a new business.
Even a 1 or 2 per cent difference can make a significant impact on businesses dealing with millions of dollars, she said.
Farm values fluctuate
The major drivers of farmland values – commodity prices, seasonal conditions and interest rates – all moved towards settings less supportive of fuelling strong demand for land purchases and are expected to continue to remain less favourable for price growth in the second half of 2023, the report noted.
Queensland saw a decline in median price, however, price movements were mixed across the state’s regions, down 3.1 per cent overall.
The median price for farmland in Tasmania held the nation down falling 24.7 per cent, which was largely confined to the northern region.
Managing director of Countrywide Finance Solutions, Tim Pilkington, explained that farm values often depend on factors like seasons, commodity prices and demand.
For example, the report showed that NSW saw an increase of 14.9 per cent in value overall.
The north-east and north-west regions of NSW witnessed a 25.8 per cent increase, while the far west experienced a 22.7 per cent decline.
Mr Pilkington attributed the decline in the far west to drying conditions in recent months, in contrast to the Riverina region, which has been less affected.
However, he noted in the cropping-based industry “the crop prices have held up pretty well.”
At the same time, demand in grazing regions was weakened by declining livestock prices.
In South Australia, farmland values increased by 12.9 per cent, while Victoria experienced more modest growth, representing a rapid slowdown from four consecutive halves with year-on-year growth of over 20 per cent down to 2.9 per cent.
Western Australia had the strongest year-on-year growth in the first half of 2023, with a 15.1 per cent increase.
Western Australian broker Casey Stein at Pascoe Partners Finance attributed this growth to a prolonged period of land consolidation and profitable seasons, resulting in highly contested transactions.
“This has led to a decrease in listings, with those coming on the market generally experiencing strong competition from well-funded buyers,” Mr Stein said.
Mr Stein added that it’s not just the value of these transactions that limits the number of prospective buyers, but also the capital investment and resources needed each season.
With the Bureau of Meteorology declaring El Niño and drier conditions ahead, Mr Stein emphasised the importance of water supply management for livestock farmers.
He noted that late rains in autumn can delay seeding and reduce crop maturation time, ultimately reducing yields.
This has led many farmers to prepare for early harvests and reduce stock loads.
Rural Bank’s report predicted lower crop production due to El Niño, coupled with below-average livestock prices, is leading to reduced farm incomes compared to recent years.
Given this, farmers are “becoming more strategic and business-oriented”, allocating more time to financial and resource management.
As a result of reduced demand, farmland values are expected to remain steady or moderately decline across the second half of 2023.
[Related: Agribusinesses brace for looming drought, lenders report]
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