Ag land prices to defy COVID-19 downturn

AUSTRALIAN agricultural land prices are expected to hold firm through 2020, defying the effects of a COVID-19-led global recession, according to Rabobank.

The report, released earlier this month, states Australian ag land prices should remain “largely unscathed”.

This is due primarily to farm profitability, a tight sales market, support from low interest rates and a weak Australian dollar, the report states.

Report author, Rabobank agricultural analyst Wes Lefroy, said positive production prospects — along with commodity prices supported by a weaker Australian dollar — should underpin a profitable season for most Australian farmers in 2020-21.

This augurs well for land prices, Mr Lefroy said.

“Farmer operating profit, in our view, is the primary driver of Australian land prices,” he said.

“In particular, sustained periods of profitability provide farmers with the financial capacity to buy more land.

“Despite the drought that has gripped much of the east coast in the past three years, reported three-year average farm operating profits are at their highest point since at least 1990 in Western Australia, South Aust ralia, Tasmania and Victoria.

“For farmers with expansion intentions, many will have the capacity to buy land.” Mr Lefroy said a historically low supply of available properties for purchase would also be a key factor supporting agricultural land prices.

The report also outlines potential risks.

“A deeper and longer-than-expected recession would both reduce investment appetite and impact demand for Australia’s agricultural products offshore, impacting farmgate prices and farm profitability,” Mr Lefroy said.

“In the event of a credit crisis, this would essentially put a pause of debt-funded property purchases.”