Agricultural land prices are expected to hold firm through 2020, according to a new report from agribusiness specialist Rabobank.
In the just-released report, Port in a storm - Australian ag land prices will remain afloat in rough COVID-19 swell, the bank says while the economy is being severely buffeted, Australian agricultural land is expected to remain "largely unscathed".
However, the outlook for agricultural property is not without risk in this uncertain environment - most particularly the threat of a deeper-than-expected global recession, a significant interruption to Australia's access to major export markets or a credit crisis.
Farm profitability
Report author, Rabobank agricultural analyst Wes Lefroy says positive production prospects, off the back of significantly improved seasonal conditions - along with commodity prices supported by a weaker Australian dollar - should underpin a profitable season for most farmers in 2020/21. And this augurs well for agricultural land prices.
"Farmer operating profit, in our view, is the primary driver of Australian land prices. Sustained periods of profitability provide farmers with the financial capacity to buy more land," he said.
"And despite the drought that has gripped much of the east coast over the past three years, reported three-year average farm operating profits are at their highest point since at least 1990 in Western Australia, South Australia, Tasmania and Victoria. Further, they are above the 10-year average in all states, except NSW."
Low supply
Mr Lefroy says a historically low supply of properties will also be a key factor supporting ag land prices.
"We see the number of properties on the market staying at, or near, historical lows in 2020 for several reasons," he said. "We expect there will only be a very small number of sales which are due to financial circumstances."
Risks
While ag land is in a strong position, there are risks to this outlook, the report says.
"A deeper recession would both reduce investment appetite and impact demand for Australia's products offshore, impacting farmgate prices and farm profitability," Mr Lefroy said.
