Capital values for farmland have jumped over 30 per cent over the past 12 months according to the Australian Farmland Index

Strong commodity markets, low cost of finance and surging livestock price due to low stock levels are combining to create the strongest underlying conditions for farmland price in 30 years, according to Rabobank’s latest Agricultural Land Price Outlook report.

ANREV Australian Farmland Index is a performance benchmark tracking a basket of agriculture properties managed by agri fund managers including Argyle Capital Partners, Aware Super, goFARM Australia, Gunn Agri Partners, Hancock Agricultural Group and Rural Funds Management. Its September quarter update shows that national median price for agricultural land returned 15.07% on a 12-month rolling basis in Q2 2021. 

Four of six states see a double-digit price growth. Tasmania’s agricultural land prices surged 28.3 per cent between 2019 and 2020, in Victoria by 15.8 per cent, Queensland by 15 per cent and WA by 14.1 per cent. Growth in NSW and South Australia was slightly lower, recording year-on-year median price growth of 6.1 per cent and 1 per cent respectively. 

In the next 5 years, according to Rabobank’s base case forecast, the land price growth will continue, with price growth at its sharpest in the next two years. 

What’s driving behind?

Major commodity prices are either at or near record levels according to Rabobank. This is directly or indirectly supported by China’s structural commodity deficit, short global supply outside of China and the rebound of the global economy out of the Covid-19 crisis.

The supports also come from the strong rebound in Australian agriculture from unusual drought condition in 2017-2019. Because of this millennium drought lasting from 2017 until late 2019, our nation's cattle numbers dropped down to the lowest they have been in 30 years. The good rains in 2020-2021 on the eastern and western seaboard have seen good pasture improvement, farmers are restocking their herds, pushing prices up. In 2021, EYCI – the price gauge for live cattle sales – saw the price breaks through the $10 per kilogram barrier, up to 200% of the price in 2019.

Low cost of finance and cash flooded from oversea institutional investors is another factor behind this. Cashed-up buyers alongside record-low interest rates have got boosted purchasing power and makes farmland demand are at the highest in the last five years. 9% of Australian farmers reporting they intend to buy more land within 12 months, as measured in the Rabobank Rural Confidence Survey. With the figure as high as 11 per cent in Western Australia and 10 per cent in NSW, the report shows. 

The right timing to enter the market 

Wharton (WA) Pastoral Fund entered agri business with the best timing and secured three extreme large pastoral stations spinning 900,000 hectares of land in the lowest point in the cycle. The team identified the 3 properties - Kumarina, Marymia and Weelarrana station back in February 2019, at a time when Australia was in the grips of one of the worst droughts in over 100 years.

In 2021, we are seeing rain, demand and prices that are equivalent to a one in a 50-year season. The current market shows a whopping increase in both livestock price and agri land price, which is in line with management’s prediction in 2019. 

This trend will increase as producers are keeping rebuilding herds back to pre-drought numbers, which is a 4 to 5 years breeding cycle and considers that most of the cattle sold during the drought spell was male cattle, with most producers trying to retain the female cattle for breeding. This conclusion is in line with the report from Rabobank’s research team - we will see a continuous value increase in the next five years under base scenario. 

Wharton Pastoral Station - Marymia, WA

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Wharton (WA) Pastoral Fund offers an opportunity to invest in a low-correlated assets class enable investors to diversify their portfolio and provide sustainable and solid long-term returns. With the best experts of the industry and our disciplined way of investment management, we will keep delivering outstanding results and value to our investors. If you are interested in agri business investment or seeking for opportunities of future partnership, please contact our team info@whartoncapital.com.au.