Industry watchers expect farmland value to keep increasing but may peak in 2023 with the driving forces of high commodity prices and plentiful rainfall still in force
The most recent report released on farmland values has reiterated how strong growth maintained its momentum in 2022 as the tightening supply of properties available shrugged off any emerging market headwinds.
A check across all farmland transactions from holdings larger than 30 hectares, shows how 2022 was another outstanding year for local agriculture land value.
La Nina conditions produced a third consecutive year of above average rainfall. This factor combined with above average commodity prices created many opportunities for high farm incomes.
Australian farmland values remained firm and with a reduced supply of properties led to the national median price per hectare keeping pace with the growth seen in 2021.
As a result, the national median price per hectare in 2022 increased by 20% to $8,506 per hectare. This meant that growth kept pace with 2021, as that year also recorded a 20% rise.
Rising prices through 2022 extended the recent period of growth to a ninth consecutive year. Over that time, the national median price has risen by 167% at a compound annual growth rate (CAGR) of 11.5%, with the exceptional growth rates seen in recent years now lifting the national 20-year CAGR to 8.5%.
The performance of Australian farmland values in 2022 stands in contrast to other investment classes. In many ways, 2022 was a turning point in both the global and Australian economy.
These shifts were largely the product of high inflation and a sequence of rises to the official cash rate. While farmland was able to maintain its momentum, residential dwellings recorded a downturn in values.
As an example, the national average price of residential dwellings fell 5.3% across the year following growth of 25% in 2021.
This contrast highlights the very different nature and drivers of the farmland and residential property markets. The Australian share market also experienced a weaker year with the ASX200 closing 2022 at 5.5% lower year-on-year.
These diverging performances held farmland’s long-term advantage over other investment classes with residential dwelling prices achieving a 20-year CAGR of 5.5% while the ASX200 is slightly lower at 4.3%, or 8.9% including dividend returns.
Farmland transactions in 2022 equated to a total of 8.8 million hectares of land traded at a combined value of $11.7 billion.
Drivers behind farmland values
The Farmland Values report for 2023 from Rural Bank outlines how this time of unprecedented growth in values needs to be understood to ascertain what factors can affect farmland values moving forward.
Strong demand for land continued to be fuelled by high agricultural commodity prices which pushed further into record territory in 2022.
Rural Bank’s Commodity Price Index combines indicator prices for major agricultural commodities into a single index by weighting each commodity by its gross value of production.
In 2022, the annual price index increased 11.5% from 2021. However, it was a year of two distinct halves for commodity prices.
The index rose in the first half of 2022 with a gain of 6.3%. This was the culmination of a 52% increase since January 2020.
This rise was led by crop prices which were driven higher following the onset of conflict in Ukraine. Meanwhile, livestock prices steadily eased and wool prices posted some small gains.
In the second half of 2022, the index swiftly changed to a declining trend, falling 14% from July to December and back to levels seen in mid-2021.
While crop prices lost some of the gains made earlier in the year, declines in livestock and wool prices escalated. Dairy was the exception to the trend with record high farmgate prices set for the 2022/23 season.
Farm incomes delivered by high commodity prices in 2021 and into the first half of 2022 helped fuel strong buying power and the confidence to expand.
The benefits of high commodity prices have, however, been somewhat diluted by high input prices. As commodity prices fell from a peak later in 2022 demand for farmland likely began to soften.
In 2023 to date, commodity prices have now declined further and appear likely to settle at a lower level for the remainder of the calendar year.
If high farm incomes are not maintained in 2023 it has the potential to cause prospective buyers to reassess their purchasing intentions and consequently lead to a shallower pool of buyers.
Seasonal conditions
Buyer demand for farmland was also buoyed by wet conditions continuing across many agricultural regions in 2022. This made for a third consecutive year of above average rainfall.
Nationally, 2022 was the ninth wettest year on record and the wettest of the last three years. Rainfall was driven by La Nina events during the 2021-22 Summer season which redeveloped again in spring of 2022.
The few exceptions to the wet year were the far south-west of Western Australia and parts of western Tasmania.
While wet conditions were beneficial in driving another year of strong agricultural production, there were downsides as saturated soil profiles and full water storages contributed to multiple flooding events throughout the year.
Increased production from wet conditions coupled with high commodity prices helped lift farmland values by sustaining strong buying power while providing fewer pressures to sell which helped drive the much tighter supply.
The results of wet conditions last year should carry through to farmland values in 2023 as more prospective buyers come into the new year backed by solid cash flow, the largest and most valuable winter crop on record, and expanded livestock production.
The only interruption will be a return to dryer conditions over the coming months that could lead to an element of caution entering buyers’ minds. But dry weather is not on the radar just yet.
Interest rates
One of the biggest factors to shift in the farmland market in 2022 was the rapid rise in interest rates.
After sitting at a record low of 0.1 per cent since November 2020, the Reserve Bank of Australia (RBA) began raising the official cash rate in May 2022. By December 2022, the base rate had been raised to 3.1%.
Overall, 11 rises since May 2022 have seen the base rate lifted to 3.85% by May 2023, its highest level since April 2012. The pace of interest rate hikes also likely began to take some heat out of demand for farmland as buyers carefully reassessed debt repayments.
Following the succession of hikes in the last 12 months, the current level for interest rates is likely to be factored into any buying decisions now. This has potentially taken some buyers out of the market at this point in the cycle, reducing competition.
Outlook for 2023
The key drivers of farmland values are set to remain in favour of demand exceeding supply in 2023, driving a 10th consecutive year of growth in the national median price per hectare.
Some industry watchers are even predicting supply and demand are likely to come into closer alignment as a softening of demand is expected on the back of lower agricultural commodity prices, a drier rainfall outlook and relatively high interest rates.
There is still appetite and ability to continue expansion and acquisition following strong farm incomes in 2022, however, some buyers are expected to return to consolidation and take some competition out of the market.
Recent high farmland values could prompt some nervous farmers expecting lower commodity prices and a drier season to be prompted to take advantage of the current high prices and exit the industry.
If that occurs, there will be additional supply on the market.
But on balance, further growth in farmland values is expected in 2023 but the rate of growth will likely be much lower than the previous two years as key drivers of growth could shift to less favourable settings.
Farmland value by state
A look across Farmland values in all states in 2022 highlighted Tasmania as the clear standout with a rise in its median price per hectare of 54.9%.
While Victoria, South Australia and Western Australia all recorded growth of more than 20%. These states were closely followed by Queensland and New South Wales with increases of 15.9% and 18.9% respectively.
Across the Territories, it was the Northern Territory that stood out, recording price growth of 108%. This was the first time in the last 28 years that growth over 15% was recorded across all states and territories.
Farmland values were supported by a sharp decline in transaction volume. Nationally, the number of farmland transactions declined by 34.3% in 2022 to 6,588.
This was the lowest level of transactions in the last 28 years, a sudden reversal from 2021 which was the highest transaction volume since 2007.
The decline in 2022 more than offset the 40% increase in transaction volume between 2019 and 2021.
Across the states, declines in transaction volume ranged from a 13.8% decline in Tasmania to a 44.6% decline in Victoria.
Meanwhile, South Australia was the only state to record an increased number of transactions in 2022.
Western Australia
Strong growth in WA farmland values continued in 2022 bolstered by a record winter cereal crop harvest, above average commodity prices and a tight supply of farmland.
The median price per hectare pushed further into record territory to reach $5,121ha. While a rise of 22.5% was a slowdown from the previous year’s growth of 36.3% it marked the fifth consecutive year of growth.
Over this period the median price has risen by 157%, with WA farmland values increasing in 10 of the past 12 years.
This strong run of growth sees WA farmland values among the top performers in the country with a 10-year CAGR of 10.2% the third highest while the five-year CAGR shows an impressive 21.5%, the second highest.
The growth in median price per hectare was seen right across the state except for the Southwest where values were flat year-on-year but remained near record levels.
The Central region recorded the state’s strongest growth for the second year in a row with a rise of 59.8% in 2022 following on from a 52.1% increase the year before.
The other two regions to show exceptionally strong growth were Avon- Midland with a 49.1% increase and the Great Southern region rising 30.2% from the previous year.
The more marginal Great Eastern region recorded a 6.8% rise in median prices which was a sharp pullback from the 50.6% gain seen in 2021.
The median price was pulled down by lower prices for large parcels of land above 900 hectares. This parcel size segment saw a 26.2% drop in its median hectare price to $762ha while at the same time accounting for the largest proportion of transactions at 36%.
The Northern region also recorded single digit growth posting a 5.6% gain compared to 28.5% seen in 2021.
Once again median hectare prices of large parcel sizes in the more marginal area were flat to lower while at the same time making up 71% of transactions.
The total volume of transactions across Western Australia fell by 27.6% to a 28-year low of 452.
All regions across the state recorded a decline in transactions except for the Central region which saw an increase of 17.3%.
The sharpest decline in transaction volume occurred in the Great Southern region which had 51.3% fewer transactions in 2022. Other regions saw declines between 18 to 35%.
Despite a decline in transaction volume, the area of land sold experienced an 8.5 per cent increase to almost 359,000 hectares in 2022. This occurred due to the increase in large parcels of land traded in the Central and Northern regions.
The total value of all land sold in 2022 was $895 million, an increase of 27.5% from 2021.
Queensland
Upward momentum in Queensland farmland values was maintained in 2022 as the median price per hectare reached a record high of $8,119ha. While year-on-year growth of 18.9% is a slowdown on 2021 growth of 31.3%, this marked the third consecutive year of growth and has Queensland registering increased median prices in seven of the past nine years.
The state’s median price in 2022 was double that of five years ago due to a five-year CAGR at 14.9%. Longer-term growth has also been strong with a 20-year CAGR of 8.8%.
The median price of farmland in all Queensland regions increased year-on-year for the second consecutive year, with all reaching record highs.
Where 2021 Queensland farmland values were characterised by strong demand for smaller parcel sizes in regions closer to population centres, 2022 saw the strongest growth in median prices in regions of larger properties driven by favourable conditions for crop or pasture growth and strong cattle prices.
Growth in the Western Downs outpaced other regions with a rise of 77.5% year-on-year, while the West and Central regions rose 41.0% and 33.2% respectively.
The Southeast region retained the title of the highest median price per hectare in 2022, though an increase of 13.4% was down on the prior year’s lift of 24.8%.
Decelerating growth was a common theme among other regions, best exemplified by the North region which recorded a year-on-year increase of 3.5% compared to 21.1% in 2021.
While the median price per hectare continued to lift, transaction volumes went in the opposite direction with all regions recording a year-on-year decline in the number of sales.
Queensland recorded 1,785 transactions, down 30.9% on 2021. It is important to note that the 2,583 transactions recorded in 2021 were the highest in 14 years, so for context 2022 sales were only 6.2% below the five-year average.
The West region suffered the largest decline of 63%, closely followed by Central with a 60.6 per cent decline. Other regions saw declines of 21-35 per cent.
Reduced transaction volume saw the total area traded drop 39.1 per cent year-on-year to 2.5 million hectares. This is 38.6% below the five-year average and is the lowest amount of area sold in the last 28 years.
In addition to fewer transactions, the area traded was restricted by smaller land parcels between 30 to 100 hectares making up over half of all transactions in 2022.
A lower area traded contributed to a 31.5% drop in the value of land traded which fell to $3.2 billion but was still the second most valuable year on record.
New South Wales
Farmland values in New South Wales continued to push further into record territory with a 15.9% rise in the median price per hectare in 2022. This was an acceleration from the 8.3% growth in 2021 and took the median price to $7,349ha.
The median price has now increased for nine years in a row. Over that time, growth has occurred at a CAGR of 11.4% for overall growth of 163%. This recent growth rate is well above the longer-term 20-year CAGR of eight per cent.
Growth in 2022 was led by the Central West region that saw a 46.4% rise in the median price per hectare.
Exceptionally strong growth was also seen in the New England and North West region where the median price rose 35.3%.
Interestingly, these two regions account for the largest share of the state’s transactions. Combined, they accounted for 44% of transactions in 2022 and therefore have a significant influence on the direction of the state’s median price.
Growth in the Southeast, Far West and Riverina Murray regions was relatively lower but still strong at between 15 to 17%.
Modest growth of 7.7% was seen in the Hunter region while the North Coast recorded a decline of 9.6%.
In terms of longer-term price trends, both the Central West and Southeast regions have the longest runs of uninterrupted growth with a ninth year of growth in 2022.
A significant theme for the New South Wales farmland market in 2022 was a sharp decline in transaction volume. The number of transactions in the state fell by 41.9% in 2022.
With 2,309 transactions, this was the lowest transaction volume in the last 28 years and 31.7% below the 10-year average.
This was in stark contrast to the preceding two years when transaction volume rose 62% from 2019 to a 15-year high in 2021.
This suggests that landholders who delayed sales during drought conditions in 2018 and 2019 capitalised on improved conditions and high land prices in 2020 and 2021 to sell properties.
Those selling intentions tapered off by 2022 on the back of three consecutive years of wet conditions and high commodity prices which led to fewer pressures on landholders to sell.
The theme of tight supply was consistent across the state’s regions with declines in transaction volume ranging from 34 per cent in the Far West to 51 per cent in the North Coast.
The decline in transaction volume led to a 41.3% decline in area sold with 1.3 million hectares of farmland traded in 2022. The total value of all land sold in 2022 was $4.4 billion, a decline of 27.6% from the record high in 2021.
Victoria
Victorian farmland values increased for the seventh consecutive year in 2022 as strong demand and tightened supply applied upwards pressure on the median price per hectare.
The median price increased by 26.3% in 2022, a minor slowdown from a 30.4% rise in 2021.
The strong period of growth in recent years has lifted the five-year CAGR to a very high 17.6 per cent. The longer-term growth is more moderate with a 20-year CAGR of 8.4%.
The upwards shift in median price per hectare was consistent across all of the state’s eight regions. This was only the third year since 1995 that all regions have seen growth in their median price.
Growth in 2022 was led by the Central region which recorded a 52.3% increase in median price per hectare. This was closely followed by the Mallee with a rise of 45.3%.
Growth in the Ovens Murray, South West and Wimmera regions was marginally lower but still strong at 34 to 36%.
The lowest growth rates were seen in the Goulburn, South and West Gippsland and East Gippsland regions which were still very strong at 21 to 23%.
This was the second year in a row, and only the second time in the last 28 years, that all regions in Victoria saw price growth of at least 20%.
The number of transactions in Victoria declined by 44.6% to 1,007 in 2022. This was the lowest number of transactions on record for the state and 33.6% below the five-year average.
All regions recorded a decrease in transaction volume of at least 30% in 2022. The most prominent falls occurred in the Central and East Gippsland regions with falls of 55 to 59%.
Falls of just under 50% occurred in the South and West Gippsland, Ovens Murray and Mallee regions.
The sharp decline in the number of transactions recorded in 2022 contributed to a 59.3% fall in the area of land traded which declined to 104,446 hectares, the smallest area in the last 28 years.
The impact of a smaller area of land traded pushed the total value of all land sold in 2022 down to $1.3 billion but still making it the fourth most valuable year since 1995.
South Australia
South Australian farmland values continued their upwards trajectory in 2022, rising for the seventh consecutive year.
The median price per hectare of South Australian farmland increased by 23% in 2022. This was the second largest increase out of all states in 2022.
This increase was an acceleration on rises of 8.4% in 2021 and 10.9% in 2020.
The rise in median price per hectare in 2022 was also the state’s highest single year increase since 2005.
The state’s five-year CAGR now sits at 15.4% which remains well above both the 10- and 20-year CAGRs of 9.1% and 8.8% respectively. The median price per hectare now sits at a record $7,304ha.
Growth in median prices per hectare was observed across the state, with every region recording an increase for the first time since 2006.
The Eyre Peninsula led the state with a rise of 31%, adding to a 30.2% increase in 2021.
The Yorke and Mid-North region was a close second with growth of 26.3%.
The Adelaide and Fleurieu region also recorded an exceptional rise in median price of 21.7%, as a more than doubling of sales in the expensive Yankalilla municipality drove a strong regional performance.
Kangaroo Island ended the year 9.4% higher as a tightening of supply in the region encouraged greater buyer competition.
The Murray and Mallee, a more marginal cropping area, recorded a 5.3% increase in median price while the North region inched 2.8% higher.
Contrary to most other states, the volume of transactions in South Australia rose by 5.9% to 831 sales in 2022.
This was well above the five-year average of 750 and only the second time the state has recorded transaction volume above 800 since 2002.
The Eyre Peninsula saw the largest growth in volume with a rise of 18.7% to 108 sales, the largest total since 2002.
The Yorke and Mid-North region saw sales growth of 16.8%, with the North region also recording an increase of 11.4%.
The Lower Southeast region saw transaction volume increase by 9.8% while the Murray and Mallee region recorded a smaller 2.9% rise.
The number of transactions in the Adelaide and Fleurieu region was unchanged in 2022 and Kangaroo Island was the only region to report a drop in total transaction volume, with a decline of 28% following the substantial increase recorded in 2021.
An estimated 242,636 hectares of land were traded within South Australia during 2022, a slight decline of 2.1% when compared to 2021. This came about despite an increase in the number of transactions.
The total value of land traded increased by 25.9% in 2022, reflecting increased prices per hectare.
The total value of farmland sales within South Australia sat at a record $1.28 billion.
Tasmania
Growth in Tasmanian farmland values accelerated strongly in 2022 with the state recording a rise of 54.9% in its median price per hectare.
This followed growth of 7.6 per cent in 2021 which took the median price to $22,812/ha.
This was the fourth consecutive year of growth in the state’s median price, a period of time in which the median has risen by 132%.
In addition to recent growth, farmland values have been on a longer-term growth trend with a very strong 20-year CAGR of 10.9%.
Median price growth in two of the state’s three major regions exceeded the state’s performance.
The South region recorded the strongest growth with a rise of 108% in 2022 adding to a 50.9% rise the year before.
This exceptionally strong rise was largely due to a much greater proportion of smaller, higher-priced transactions.
The Northern region also outperformed the state growth with a rise of 68.2% in 2022.
The Northwest saw relatively lower, albeit still very strong growth of 35.9%.
Growth in all regions represented an acceleration from lower growth rates in 2021.
King Island and Flinders Island also saw increases in the median price per hectare with strong rises of 95.5% and 83%, respectively.
The low number of transactions on the outlying islands makes them subject to volatile movements in median prices which may not be representative of actual market trends.
Like most states, Tasmania recorded a decline in transaction volume in 2022.
There were 163 farmland transactions in the state in 2022, a year-on-year decrease of 13.8%.
This was the fifth consecutive year of tightening transaction volume and lowered the number of transactions to 29.3% below the 10-year average.
Reduced transaction volume was confined to the North West region and both islands. The South recorded an increase in transactions in 2022 while the Northern region was unchanged from 2021.
This meant that the Northwest accounted for a smaller proportion of the state’s transactions in 2022 at 44%, down from 51% in 2021.
As the holder of the state’s highest median price per hectare, this meant the state saw a greater proportion of transactions in lower priced regions.
As a result, this somewhat weighted down the state’s median price growth and kept it lower than some regions managed to achieve individually.
The decline in transaction volume and a greater proportion of smaller transactions led to the area of land traded falling 63.4% in 2022 to an estimated 17,183 hectares.
Less area traded flowed through to a decline in the total value of farmland traded, which fell 52.5% to $255 million.
Northern Territory
The median price of farmland in the Northern Territory increased by 108.3% in 2022. This followed a decline of 18% in 2021 and took the median to a new record high.
The volatility in the Northern Territory median price is largely a factor of the very low number of transactions and the split of transactions between large cattle stations and smaller properties in the Top End region.
In 2022, the proportion of transactions in each region remained largely unchanged from 2021. Cattle regions accounted for 22% of transactions and the Top End region accounted for 78%.
Cattle regions of the Northern Territory recorded a 15.1% increase in median price per hectare in 2022.
This was the third consecutive year of growth, adding to a 57.9% per cent rise in 2021. There were only nine transactions in 2022, down from 13 in 2021.
In the Top End region, the median price per hectare of farmland rose by 90.1% in 2022.
This followed two consecutive years of decline and took the median price to a new record high. There were 32 transactions in the region in 2022, a 27.3% decline from 2021.
