September 19, 2023

Investors see farmland as ‘a high-quality asset class’

The price of farmland has skyrocketed over the past four years – jumping 18.4% last year alone – and is now seen as a viable asset for institutional and corporate investors, experts say .

“The sector has now really matured in terms of a high-quality, large-scale, institutional-grade asset class,” says Mark Barber, head of agribusiness investment services at Elders Rural Services. “We’ve seen a number of investors come into the market and they’ve shown that he can do very well.

“There has also been an increase in liquidity if you are looking for an investment opportunity and also an exit strategy.”

The convergence of low interest rates, the end of the 10-year drought, the return to above-average seasons and strong commodity prices all played a role in pushing up the median farmland price from $5,061 per hectare nationwide in 2018, to $7,060 at the end of last year, on CoreLogic figures analyzed by Elders for its rural property update released this month.

Regionally, the price of farmland rose the most in Western Australia, at 41%, followed by Queensland by 28.9%, Victoria by 28.4% and NSW by 15.5%.

Transaction volumes also increased by 3.4% in 2021 to 9,098 properties, the highest volume since 2017.

“Anyone looking to invest might have a very positive view of the future of the sector,” says Barber. “Prices and appreciation have been very strong and there are good cash flows, strong balance sheets and farm management deposits – where the money is taken out of a good year to put it against a bad – if amounts to more than 5 billion dollars. We will see a solid market going forward.

Debt financing is also currently at record highs, meaning landowners can afford to pay more for the same plot of land, says Sam Douglas, head of agribusiness valuation and advisory services at Necklaces.

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National median price per hectare in the states.

Research also enables farmers to make better use of land, and the trickle down of intergenerational wealth further strengthens the strength of the sector.

The impact of COVID and its disruption of supply chains, along with a renewed interest in self-sufficiency and producing more of our food ourselves, has also increased land values ​​and agricultural products. “The cost of agricultural inputs such as fertilizers continues to rise, as major producers Russia and China seek to meet domestic demand, limiting global supply and driving up grain and oilseed prices. on the farm,” says Douglas.

“Commodity prices paid for products such as beef cattle have also trended significantly higher, following prolonged periods of drought and reduced herds with a temporary shortage of supply and prices raised per kilogram of meat.

“The rush to supply dairy processors continues to support milk prices and support the cost of expansion opportunities,” he says.

With the sector further disrupted by war in Europe and escalating wheat prices, agriculture could be set up for even more growth. At Bendigo and Adelaide Bank, which owns Rural Bank, spokesman James Frost said that – looking ahead to their own report published on May 3 – the growth in farmland prices and farm values ​​has been incredible.

“It sometimes even exceeds the price growth we’ve seen in the metropolitan residential markets of Sydney and Melbourne, which is quite amazing,” he says.

This story is part of our April Agribusiness article. Read more stories here.