Farmland prices rose by 15 per cent in Queensland last year and a Rabobank report released today suggests they still have higher to go.
Rabobank senior agricultural analyst Wes Lefroy said that, until now, the state had a better match between supply and demand than other parts of the country where 'fear of missing out' (FOMO) purchases had seen prices spiral.
"While better quality properties continue to sell strongly, lower quality properties are taking longer to sell," Mr Lefroy said.
That could be about to change. In 2020, there were a record number of sales state-wide, up 21pc year-on-year.
Early indications are that the number of sales could halve in 2021, with much of the post-drought backlog cleared.
At the same time, demand for property purchases has dramatically increased as much of Queensland emerged from the drought.
While still lower than in other states, the proportion of Queensland farmers looking to buy land is now at the highest point in five years.
Farmland price forecast
In such a tight market, FOMO is understandable and Rabobank expects national farmland prices to remain firm during the next five years, with growth at its sharpest in the next two years.
"We think it's likely that commodity prices will remain supportive for the next 24 months, while we expect interest rates will remain at record lows until at least 2024," Mr Lefroy said.
Rabobank's "base case" forecast is for national farmland prices to lift 10pc in 2021 and 8pc in 2022.
"As macro forces begin to ease, so does growth, falling to 5pc in 2023," the report said.
"In 2024, 2025, and 2026, we expect lower growth of 2pc, 1pc, and 1pc, respectively, as the market 'takes a breath' and as productivity gains catch up to prices.
Stagnation or even a down-shift in prices was still possible but only if there was "a multi-year interruption", he reported, to a combination of commodity prices, production, or interest rates.
Not all states the same
While Rabobank figures show 6pc year-on-year growth for 2020 for Australian farmland, the difference between states is stark.
Tasmanian farmland has continued its stellar growth recording a surge of 28.3pc in a year, taking its median farmland price to $15,999/ha.
Victoria came in second, both in terms of its 15.8pc growth and $10,981/ha.
As a whole, Queensland has Australia's lowest farmland price of $2734/ha but it grew a hefty 15pc.
Western Australia was next with a 14.1pc increase taking its average to $3244/ha.
New South Wales was far more restrained with a 6.1pc rise, reaching $5653.
South Australia recorded the lowest growth, clocking up a modest 1pc.
Value pockets in Qld
Within Queensland too, the upward trend in prices was far from uniform, the report showed.
Mr Lefroy said prices for grazing land had continued to appreciate strongly.
"In coastal regions in particular, we have witnessed prices of grazing land approaching parity with land traditionally used for cane production, with some cane land even being converted back to grazing land," he said.
In contrast, Rockhampton, Mackay, Burnett, Biloela, Bowen Basin North, Darling Downs West and the outback regions were all relatively stable in price.
The Rabobank report compared the price of land in different regions using rainfall data, discovering there were still bargains to be found.
"For those buyers who do their homework and have the flexibility within their business to seek inter-regional purchases, there may be greater productive value to be had for their capital investment," Mr Lefroy said.
Demand for land was particularly strong in south-eastern regions, such as the eastern Darling Downs and Granite Belt. On a rainfall basis, these two regions were now the most expensive in the state.
Australia's most expensive farmland per millimetre of rainfall is South Australia's Yorke Peninsula, with the top price paid approaching $60 a hectare per millimetre of annual rainfall.
Rainfall, though, isn't everything when it comes to the performance of Australian farmland.
To help better gauge value, Rabobank has partnered with Digital Agricultural Services to measure both the productivity and reliability of different farming regions.
Productivity increases from left to right and variability increases towards the top of the chart.
Put simply, regions in the lower right hand column of the chart hit the sweet spot of reliably high production.
The smaller the bubble, the lower the price. The colour of the bubble simply shows which state the region is in.
For example, the chart shows that the red region priced at $2574/ha presents incredibly good value compared to the less productive and less reliable region, still in Queensland, priced at $8368/ha.
Wes Lefroy was reluctant to name the regions publicly.
Still, he said, the principle was sound and was supported by data suggesting that farmers were looking beyond areas where price growth had outstripped productivity performance.
Buyers look beyond
In the early stages of the current phase, Mr Lefroy said, land price growth was primarily driven by four main regional factors.
They were high and/or consistent rainfall, a lot of farmers with expansion plans, lifestyle benefits, and the ability to grow high-value or multiple production types.
"Now, regional trends have been overwhelmed by the strength of the macro factors," Mr Lefroy said.
"That is, regions that scored low on those four metrics are now recording upticks in growth, fuelled by strength in the three macro factors: prices, production, and interest rates.
"This includes demand from both local buyers and buyers from higher-priced regions who have expanded their search for land with greater productive value."
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