Rural property on the boil

Fuelled by low interest rates and large scale family farm businesses looking to expand, Mr Smith said Rural Finance's Farm Land Value index had showed 4.4 per cent growth in 2014, above the long term trend of 4pc.

Competition is growing between Australia's major rural land selling agents, with farm sales volumes expected to come out of a trough.

Major institutional and private investors are seeking to gain a foothold in the growth area of agriculture, ramping up agent interest.

Elders chief executive Mark Allison, who saw the rural services company sell more than $1.4 billion in real estate last year, is taking on the new entrants of CBRE and Colliers International, aiming for 12 real estate agency acquisitions next financial year and 40 by fiscal 2017.

Mr Smith said there had been $786 million of land sales defined as agricultural land in the 2014 index, and that foreign and corporate investors had not purchased significant amounts of ground.

“The leaders appear to what you could term the family corporate farm, the larger scale family farm.

“There certainly have been some sales to corporate investors, but in percentage terms it is not necessarily that high.”

Principal of agricultural consultants ORM Phil O’Callaghan said the value of parcels of land currently hitting the market was often slightly below what international investors wanted.

“They are often looking to invest a minimum of $5 million and that is more than the average land sale in this State (Victoria).”

And he said there could be scope for further good growth in Victorian farmland, given signs of an upturn in the southern dairy market.

“Dairy was flat in south-western Victoria in 2014, but that is showing signs of picking up, so that will boost the overall numbers.”

Mr Smith said a trend had emerged where farmers were happy to pay a clear premium for land nearby their own.

“That proximity factor that allows them to generate economies of scale is important, farmers will play a premium for land that fits that bill.”

Mr O’Callaghan agreed, saying the premium could be as much as 10-20pc.

“The expectation is that while land may seem dear at the time of the purchase, down the track it will look a good investment, which is what has been the case historically.”

He said while the absolute economics in terms of potential production factored against the current high land values, particularly in parts of the cropping zone, did not stack up, farmers could still make the purchase work for their business.

“The gross margins don’t follow land values, but the thing that balances that out are the economies of scale a land purchase can create, it can get machinery working more efficiently and cut costs per hectare that way.”

While the land values in formerly mixed farming zones are now getting too high to do anything but crop, Mr O’Callaghan said in his business, he often saw mixed businesses with a cropping intensity of 80-85pc succeeding.

“That model seems to be working well.”

One of the major trends, according to Mr O’Callaghan, is a push towards geographic spread.

“It does have its challenges in terms of transporting equipment, but it leaves farmers less exposed to the conditions in one specific area.

“Farmers are increasingly happy to get local knowledge in a new area from an agronomist.”

He said there was also a push for croppers to look to identify potentially arable grazing country for conversion into cropping.

“The land may take a bit of work to be safely cropped, but values are a lot cheaper in pastoral areas, so some people are having a go at converting new farms into cropping enterprises, whether that by reducing the risk of waterlogging by putting in raised beds or improving soil structure or whatever.”

Mr O’Callaghan said different businesses had different attitudes to debt.

“Gearing ratios of 60-70pc (equity to debt) can work, given the right management and approach to cost structures, but at the same time you need a strong base and depth of management.

“We generally say farmers should have at least one year’s worth of costs in reserve before they go into a land purchase, if they have that buffer in place, they tend to be able to ride through the downside.”

And while prices of farms are at a 10-year low, at less than $500 a hectare, according to Australia's largest independent property appraiser Herron Todd White, at the same time a weaker Australian currency has made outback farmland cheaper for overseas investors.

"It's a buyer's market, there's no doubt about that," said Tim Lane, rural director with Herron Todd White in Brisbane.

Among 16 key international markets for agricultural land, only Uganda and Mozambique were cheaper than Australia, Savills Plc, Britain's largest real-estate agency, said in a report last year.

Farms in Australia returned more than 15 per cent a year in the decade through 2012, Savills found. That's more than double the average return from Australia's benchmark stock index over the same period.

IT WAS a full blown drought through much of the northern Wimmera and southern Mallee last year, but Elders Warracknabeal property agent Nick McIntyre said all the land that was put on the market was sold.

“We had surprisingly good interest given the issues with the crop last year, there was probably a little bit less land up for sale than usual and that might have helped keep things firm.”

Rates for sandy Mallee ground were at around $500 an acre ($1250/ha), rising to up to $900/ac ($2250/ha) for the better sandy loam.

Closer in to Warracknabeal, Mr McIntyre said values hovered around $1000/ac ($2500/ha), but he said demand was subdued for heavier soil types.

“They can produce more in a better year than the sands, but they are also less reliable in the dry years.”

Mr McIntyre said low interest rates were also playing a key role in attracting interest for land, but said farmers would need a good season to continue to look to expand.

“It has held up well in terms of prices, but we probably need an average to good year this season or else things could go quiet next year.”

In terms of the size of properties that have been selling, Mr McIntyre there had been a mixture of whole farm sales, combined with other vendors putting smaller blocks on the market.

“The smaller parcels obviously can attract more local interest, whereas a whole farm may interest someone looking to diversify geographically.”

He said there had been good interest in farmland in the Rainbow district.

“The soil types there are generally suited to the lower rainfall, they are not too heavy, and the area often seems to fare slightly better than other Mallee areas in a dry season.”

Mr McIntyre said farmers from the Western District continued to look at investing in the area.

“There are still people that want to have a geographic spread of holdings.”

In terms of demand from international investors, Mr McIntyre said the size of the offerings for sale was not sufficient.

“There has been a lot of enquiry, but the parcels are just that little bit small, we probably see those type of investors looking at WA or parts of northern NSW, where there are bigger acreages up for sale.”

THERE has been good interest in dual purpose country to the south of Hamilton according to Robert Claffey, broadacre real estate agent with Kerr and Co, Hamilton.

“That dual purpose red meat grazing and cropping country is selling very well, anything from the fringe of the dairying area around Koroit and north.”

Mr Claffey said the majority of the land that had been under the hammer was of a reasonable scale.

“We’ve seen whole farms hitting the market, parcels over 1000 acres (400ha).”

North of Hamilton, Mr Claffey said there had been little activity.

“There seems to be a strong price point in the southern part of my region, but there’s been a lack of enquiry in the redgum country, which is purely grazing.

“Prices vary from $1200/ac ($3000/ha) near Balmoral, up to $1800/ac ($4500/ha) in more reliable areas near Wannon.

In the south, he said values were frequently around $2000/ac ($5000/ha) around Penshurst and Macarthur.

Mr Claffey said the region’s reliable rainfall was critical in attracting interest, but added there were other geographic advantages.

“People are interested in exporting livestock to south-east Asia and the port at Portland is nearby.

“There is the chance to pursue a plan for vertical integration, which has appeal.”

Mr Claffey said there had been a swing in land use throughout the region back into the red meat or wool enterprises the region was traditionally famous for.

“There have been people who have been burnt by pushing the envelope with cropping and have eroded equity.

“Crop will still go in, but I think we’ll find farmers really targeting the paddocks that are suitable rather than being tempted to plant paddocks that can get wet.

“The prices for red meat look attractive at present and that is an area people are looking to explore.”

RECORD low interest rates have more than outweighed the poor season in the Wimmera last year in terms of the leading driver on agricultural land over the late summer / autumn selling period.

After a big lift in sales values in 2014, Elders Horsham agricultural property sales manager Geoff Coustley said there had been another whopping spike in 2015.

“We’re getting close to a 30pc lift in value of some blocks just over the past couple of years,” he said.

Mr Coustley said there had been incredible sales of over $3000 an acre ($7500/ha) for prime cropping ground with relatively reliable rainfall this year, smashing previous record values in the immediate area.

“It is not a one off case, there have been a couple of sales at these values.”

There have also been a number of sales in excess of $2500/ac ($6625/ha), after prices pushing through the $2000/ac ($5000/ha) consistently for the first time last year.

Mr Coustley said it had been one of the strongest rises in land values in his time in the business.

“We had a fast rise in the value of grazing country during the dry years in the 2000s but this certainly equals that jump in value.”

Mr Coustley said there was still good interest in fertile Wimmera black soils, but now farmers were also looking to the southern end of the Wimmera plains, seeking more rain.

“Areas like that directly around Horsham, Natimuk and Rupanyup are in demand,” he said.

He said the major competition for land had come from larger family farm operations.

“We have had some interest from external investors, such as international interests, but the parcels of land available have not been of the scale they require.”

Mr Coustley said grazing country in the south of the region, around Balmoral, Harrow and Edenhope had remained steady.

“Values remain at about $1200/ac ($3000/ha), the real interest is in the cropping land.”

He said he did not feel the rapid appreciation of land prices would lead to a rural property bubble and an eventual decrease in prices.

“In this sector we don’t tend to see big drops, it is generally a bit of a climb up, then there’s a bit of a plateau period for a while.”

TEN dairy farms have been sold in the Macalister Irrigation District so far this year in a turnaround for the industry and the region.

In the central Gippsland district a dozen have been sold in this financial year, in stark contrast to the trend in recent years.

Of those dozen, seven dairy farms went to a single consortium and two more have been bought to expand existing enterprises.

While a few sales have facilitated retirement for their sellers, at least one vendor sold his dairy farm to buy a larger one in the same district.

For properties sized at 200-500 acres (80-200 hectares), purchasers have paid $8000-$9500/acre, depending on location and whether the sale is on a walk-in-walk-out basis or comprises land and buildings only or land and herd.

According to selling agent Tim Missen, Gippsland Real Estate, Maffra, there is a lot of confidence in the district's dairy industry.

"All the purchasers have been local people, including a consortium between farmers and a local rural merchant business that bought seven farms," Mr Missen said.

"It's been a dairying area where there haven't been a lot of sales in the past four years.

"As well as climate that's not too dry and not too hot and consistent seasons, there are many services in the area, especially milk processors.

"Murray Goulburn is at Maffra and Fonterra, Bega and Burra are all active in the area.

"These sales are showing confidence in the dairy industry – that it has good prospects for it."

As well as consistent seasons, another attraction is the irrigation water that is available through Southern Rural Water.

The soil profile varies across the district, including red soils, heavy loam over clay and river silts.

"It's a floodplain so there's a lot of soil types over very small areas," Mr Missen said.

"Three-phase power is predominantly through the area – it's necessary for dairy sheds – and there is a strong dairy workforce available in the area.

"Most importantly, these farms have all been bought by people who already have a large stake in the industry and are making a considerable ongoing investment."

Mr Missen said there had been significant resultant investment in infrastructure in recent months that benefitted local businesses.

"Infrastructure investment has included centre-pivots, irrigation piping, onfarm dams and water storages, grain handling facilities and silos," he said.

"All these have been purchased from local farm supplies businesses.

"There's also been a lot of fencing done using fencing contractors."

Another industry expansion in the district has seen dairy farms bought by horticultural businesses investing in the baby vegetable industry – again because of the soils, irrigation water and infrastructure availability.