Continuing boom in agricultural land market depends on the weather
The boom market for agricultural land, underpinned by soaring commodity prices, low interest rates and the blessings of a drought broken, could moderate through 2022 as the broader rainfall pattern eases into a drier cycle.
But while large farming enterprises and corporate players will still dominate the land market, family farmers, cashed up by bumper returns over the past two years, are also making a return.
A key swing factor underpinning the demand for land and price growth is what the weather does. The La Nina cycle, which brings good rains, is at or near its peak, according to the Bureau of Meteorology. As the pattern moves to a more neutral setting, the prospect of above-average rain lessens.
After land prices rose about 10 per cent last year, Rabobank expects gains could temper to about 8 per cent this year, falling to 5 per cent in 2023, in its current base-case outlook. Over 2024 to 2026, land price growth could dip to 2 per cent, then 1 per cent as the market takes a breather and productivity gains catch up with prices.
“We’re expecting growth to continue to be strong albeit slightly lower than what we witnessed in 2021,” said Rabobank senior analyst Wes Lefroy this week.
“If you look back to 2021 it’s hard to see how the macro settings could have been any more favourable: rainfall across the country was average or above average, commodity prices were at or near records and interest rates were at a record low.
“The land market is still in a very strong position but the uncertainty for 2022 is around what the weather is going to do.
“We are in a very strong position, particularly on the east coast where the soil moisture is very strong, but if we do see drier conditions that could dent confidence and investment intentions and then flow through to land markets.”
Appetite to expand
The rain, and all that follows in terms of returns, flows into farmers’ appetite to expand their enterprises through land acquisition. Around 6 per cent of farmers surveyed by Rabobank in the 2020 final quarter flagged an intention to buy land within 12 months. At the end of last year, that had risen to 10 per cent.
It is still the big players who dominate the buying plans. Around 19 per cent of the large players have signalled intentions to expand their holdings, while only 4 per cent of small-scale farmers have.
“We still the large farmers are predominantly going to be the most active in the market,” Mr Lefroy said.
Agriculture is becoming more institutional, as local and global funds extend their footprints while long-standing farming families take a more corporate approach. Among the headline deals last year was the $600 million sale of Macquarie Crop Partners’ Lawson Grains portfolio to New Forests and Canada’s AIMCo, while Macquarie took over the country’s biggest portfolio of berry and citrus farms in a $246 million deal.
The big deals also include the purchase for about $120 million of part of the Van Diemens Land dairy portfolio in north-western Tasmania by the Roberts-Thomson family and the investment by Financial Review Rich Listers the Wilson family into the $104 million purchase of the Northern Territory’s historic Wave Hill Station by the MacLachlan family’s Jumbuck Pastoral.
But it is a deal earlier this month – the $120 million sale of Shenhua’s coal mine land to 12 local families and an offshore buyer – which shows that smaller farmers are also ready to expand where they can, according to David Goodfellow, a former fund manager and now managing director of CBRE Agribusiness.
“Up until 12 months ago, family farming businesses didn’t have the money that they have now.
“They are stepping into the marketplace that until 12 months ago was dominated by the institutions.”
