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Agricultural land prices defying COVID-19

By Country News

Australian agricultural land prices are expected to hold firm throughout 2020, despite the effects of a coronavirus-led global recession, according to a new Rabobank report.

The report, Port in a storm — Australian ag land prices will remain afloat in rough COVID-19 swell, said agricultural land was expected to remain “largely unscathed” due to overall farm profitability, a tight sales market and support from low interest rates, and a weak Australian dollar.

Rabobank agricultural analyst and report author Wes Lefroy said positive production prospects would create a profitable season in 2020-21.

“Farmer operating profit, in our view, is the primary driver of Australian land prices,” Mr Lefroy said.

“In particular, sustained periods of profitability provide farmers with the financial capacity to buy more land.

“And despite the drought that has gripped much of the east coast over the past three years, reported three-year average farm operating profits are at their highest point since at least 1990 in Western Australia, South Australia, Tasmania and Victoria.

“Further, they are above the 10-year average in all states, except NSW.

“For farmers with expansion intentions, many will have the capacity to buy land.”

Mr Lefroy said a historically-low supply of available properties for purchase would be a key factor supporting agricultural land prices.

“We expect there will only be a very small number of sales which are due to financial circumstances, with improved production supporting cash-flow generation in drought-affected regions.

“On top of this, record-low borrowing costs have increased farmers’ capacity to service existing debt and interest rates are set to remain historically low for at least the next three years.”

Mr Lefroy said COVID-19 restrictions had been a challenge for property inspections and auctions.

“Sellers who have flexible time frames may hold back on listing properties, which will also keep the market tight.”

The report identified low returns for other asset classes — such as equities, commercial property and bonds — would increase the attractiveness of agricultural land for local and foreign investors.

A weak and depreciating Australian dollar would also support demand from foreign investors.