Farmland sales and price growth slow as drought, El Nino bite

The number of farmland sales have dropped to a 28-year low. What’s driving the slowdown?

The number of farmland real estate sales in Australia have dropped to their lowest level in almost three decades as El Nino bites and drought spreads throughout the country.

Coinciding with rising interest rates, the median price per hectare of agricultural land sold throughout the country has also slowed significantly after years of sustained growth.

Buyers continue to pay huge sums for profitable farming land, but transactions in the first half of this year fell by 40.2 per cent compared to a year ago and were down 27 per cent than the second half of 2022, according to Rural Bank’s farmland values report.

The main drivers of the trend were commodity prices, seasonal conditions and interest rates. Farm values are expected to remain steady or moderately decline in the latter half of the year.

It comes as large parts of the country suffer after months without decent rain and analysts forecast of lower crop production and reduced livestock values.

“While the overall national trend was a lack of growth in land values, median price growth in cropping regions generally kept pace with recent years as demand was sustained into early 2023 following another strong winter crop in 2022, with median values increasing in SA, Western Australia and NSW,” Rural Bank senior insights manager Greg Kuchel said.

“In contrast, demand in grazing regions was weakened by declining livestock prices and far weaker median price growth in Victoria and the Northern Territory, followed by negative growth in Queensland and a dramatic decline in Tasmania, largely confined to the Northern region of the state.”

The median price growth across the country dropped to 0.1 per cent in the first half of the year, down from year-on-year growth of between 16 and 23 per cent over the past two years.

Western Australia led the country in median price growth with an increase of 15.1 per cent, followed by New South Wales (14.9 per cent), South Australia, (12.9 per cent), Northern Territory (4.2 per cent) and Victoria (2.9 per cent).

Median prices in Tasmania performed the worst, dropping 24.7 per cent, while Queensland also fell 3.1 per cent. The report does not include smaller parcels of land or lifestyle blocks.

In its latest outlook, released on Tuesday, agribusiness lender Rabobank forecast Australia’s winter crop would be 48.72 million tonnes, down 24 per cent on last season’s record-breaking 63.85 million tonne national crop, but still close to the five-year average.

Rabobank analyst Edward McGeoch said many cropping regions were experiencing dry weather conditions, leading some farmers to consider the difficult financial equation of whether they should harvest.

In contrast, some parts of Victoria and NSW have received good rainfall in the past week, bringing much-needed soil moisture.

“Production expectations are varied across regions with some farmers expecting to see elevated production due to positive growing conditions they have experienced while others will be facing tough decisions as to whether it will be worth harvesting their crop,” Mr McGeoch said.