Drought across much of eastern Australia and good seasons in other regions have, strangely, combined to make the past year an exceptional one to remember for the rural property market.
But after five years of big rises in farmland values, which easily outperformed the share market and residential housing returns, Rabobank has tipped a market slowdown.
It has forecast more drought-weary landholders will put farms up for sale, adding liquidity to the tight farmland market.
Or, rain will also bring a rush of new listings.
Values jumped 15pc
According to Rabobank's latest Australian Agricultural Land Price Outlook, farmland values were red hot in 2018, jumping 15 per cent on average nation-wide.
In South Australia and Western Australia Rabobank's Farmland Index figures were almost double the national RFI result - up 29pc and 28pc respectively, year-on-year.
Queensland and NSW were just below the RFI average, which weights agricultural property sales based on production value.
Tasmania was the only state to go backwards (slightly) on RFI trends, yet the state has, by far, with the highest proportion of foreign buyer interest and land area ownership, followed by the Northern Territory.
Reliability of rainfall and water infrastructure developments in Tasmania made it a favourite for foreign and corporate investment diversification, according to Rabobank food and agribusiness analyst and report author, Wesley Lefroy.
In fact, a key reason Tasmanian prices did not rise with the national average last year was there were so few large scale or "top tier" properties offered for sale to attract big family or corporate buyer bidding.
Good seasons and strong demand for agricultural land continued to drive price rises in WA and SA, while in drought-affected eastern states a supply shortage was primarily fuelling land values.
However, Mr Lefroy predicted, regardless of whether drought-breaking rain arrived in 2019-20, land prices would be much less bullish, levelling out in NSW, Queensland, Victoria and possibly Tasmania, although still strong in SA and WA.
Most potential buyers emerging from drought will initially be more focused on rebuilding their production capacity at home rather than buying extra land.
While finance costs were cheap and agricultural export markets would benefit from an expected low exchange rate and growing trade opportunities, he said the property market's heat was set to moderate if dry conditions continued and more farmers lost patience in waiting for a wet break to arrive.
Drought stalls sales
A lack of enthusiasm by would-be sellers to market their farms during drought had contributed to a 40pc decline in transactions in the past five years, according to Rabobank's report.
Now Mr Lefroy believed some potential vendors would start questioning the value of riding out the big dry any longer and property numbers on the market would increase.
Alternatively, a return to good or average seasons would also trigger a surge farms for sale as vendors took advantage of better presentation opportunities and post-drought farm earning capacity.
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"We think property demand will also increase in a wet season scenario, but the market offering will probably outweigh that inquiry," he said.
"Most potential buyers emerging from drought will initially be more focused on recovering and rebuilding their production capacity at home rather than buying extra land."
Farm operating profits were also likely to moderate in the next 18 months, contributing to slower property demand and price growth.
Yet, the report said an across-the-board fall in land prices was unlikely because farmers' balance sheets remained generally strong in most sectors and regions, and the price outlook for most commodities was favourable.
It said Australian agricultural land values had been "on fire" in the past two years and median compound annual growth had risen 7pc since 2014.
That compared with 6.3pc investment growth return from the Standard and Poor's 500 Index in the same period, or 4.2pc growth in the housing market, just 1.3pc from the ASX 200 Index and negative 11.5pc returns from Reserve Bank of Australia bond yields.
Rural property returns had largely been powered by a string of favourable seasons in many regions, which boosted farm operating profits to 20-year highs in some commodity categories.
Mr Lefroy felt agricultural land would remain attractive to investors in the medium term.
"Returns aside, investors value the fact the capital return of agricultural land is not volatile and is generally not correlated with a range of other investments," he said.
Ongoing enterprise consolidation in the sector would make it simpler for investors to purchase the bigger farms they needed to meet investment parameters, while technological research and development made it simpler for investors to replicate management systems across regions.
Foreign focus on hort
Interestingly, Rabobank's report found foreign investment in Australian agriculture was most bullish in horticultural industries, particularly permanent cropping ventures, with overseas owners accounting for 36pc of the hort sector by area and 23pc by value.
Overall, while 13pc of Australian farmland had some level of foreign ownership interest, that figure halved to about 7pc of agricultural land by value.
Mr Lefroy said most foreign ownership was in the livestock sector (about 12pc of land), but pastoral grazing land was less valuable compared with overseas interest in broadacre cropping (about 8pc for land and value), or horticulture.
Foreign investment in Tasmania represents about 40pc of the state's rural land area and 32pc of its value, while in the NT it has about 28pc of both categories, ahead of WA, Queensland and SA.
Foreign interests are lowest in Victoria, representing about 2pc of the state's farmland area and land value.
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The story Red hot ag property market to cool, even when it rains first appeared on Farm Online.