Farmland value growth slows as interest rates and lower commodity prices bite

Lenders say La Nina and steady interest rates will be favourable for property buyers, but the surge in value over the past three years will ease.

Farmland values have increased for the past decade. Picture: Zoe Phillips

After a decade of solid growth, the value of Australian farmland has slowed and is expected to plateau because of high interest rates, drier conditions and the rapid and widespread drop of livestock prices in 2023.

A study of farmland values released by agribusiness lenders this week shows the decade of unbroken growth had led to a tripling of the national median price of Australian farms.

Western Australia was the leader in farmland value growth in 2023, but Bendigo Bank analyst Andrew Smith said the confidence-sapping drop in livestock prices last year had reduced demand and, combined with other factors, was likely to put a handbrake on property value growth.

“I think what we will see going forward is not a drop in value but a flat to generally rising growth over the next five years,” Mr Smith said.

Farmland values typically reflect the net value of production per farm, which rose sharply to record highs in 2021 but has receded since as input costs grew and commodity prices declined.

Bendigo’s Australian Farmland Values report forecast that reduced crop production because of unfavourable weather and high input costs this year would send net farm production values to the lowest levels since 2009-2010.

“We did see a pretty sharp turn in profitability in 2023 and while it wasn’t enough to (reduce property values), because land is not as volatile as livestock or grain prices, it did certainly start to drag on property values,” Mr Smith said.

He said dry conditions throughout 2023, and the forecast of El Nino, had contributed to an increased turn-off of livestock that dented confidence in the farm sector.

But that confidence returned somewhat with unexpected rain in November and good falls in December and January.

“While this may not necessarily renew strong demand for land purchases, it should keep a scenario of landholders feeling pressured to sell farmland at bay for the time being, keeping supply of farmland on the market subdued,” Mr Smith said.

Bendigo’s outlook was based on the assumption that interest rates were likely to have peaked and were expected to hold until 2024 and that El Nino, which sparked panic among farmers in 2023, had ended and would potentially be replaced by La Nina conditions in spring.

“Overall, while sentiment is expected to be slightly improved from 2023 and allow for some firm demand for farmland, it is unlikely that this will fuel a strong resurgence in demand to levels seen in recent years,” Mr Smith said.

“As a result, values are expected to proceed through a period of stability as farm businesses focus on consolidation after recent years of expansion.”

Agribusiness lender Rabobank also forecast slower growth over the year ahead as farm profitability dropped from record highs.

Rabobank’s analysis showed the median price of agricultural land per hectare nationwide grew 10.9 per cent in 2023, down from highs of 28.6 per cent and 27 per cent in 2022 and 2023.

However, Rabobank did not foresee a drop in land values.

“A drop in land values would require widespread drought, serious economic hurdles and/or disease outbreak – none of which is on the horizon,” the report said.