One in 10 NSW farmers plans to buy land in the next 12 months at the same time as early data suggests the number of sales in the state could be down by as much as 30 per cent.
The crunch is fuelling 'fear of missing out' (FOMO) demand that's seen farmland prices skyrocket.
But, in a pioneering report comparing the price of land in different regions using rainfall and even production performance and reliability data, Rabobank senior agricultural analyst Wes Lefroy discovered there were still opportunities to find extra value.
"While land price growth has been strong, it hasn't been uniform," he said.
"Intense competition in some regions, such as Wagga Wagga, Young/Yass, and Albury, has led to dramatic price increases relative to rainfall.
"We are now witnessing more inter-regional buying, as buyers move west and north in search of the best value."
Farmland price forecast
In such a tight market, FOMO is understandable and Rabobank expects overall property prices to remain firm during the next five years, with growth at its sharpest in the next two years.
A lack of supply in NSW would continue to fuel prices.
"During the spring of 2020, we observed an increased number of properties that were held back during the drought hit the market," Mr Lefroy said.
"Notably, there was an increased number of high-quality long-standing family farms being sold.
"These properties and a number of low- and medium-quality properties that did not sell during the drought transacted quickly, and the backlog has now largely cleared."
Demand was not likely to soften, either, as NSW came back from drought "with a bang".
"We think it's likely that commodity prices will remain supportive for the next 24 months, while we expect interest rates will remain at record lows until at least 2024," Mr Lefroy said.
Rabobank's "base case" forecast is for national farmland prices to lift 10pc in 2021 and 8pc in 2022.
"As macro forces begin to ease, so does growth, falling to 5pc in 2023," the report said.
"In 2024, 2025, and 2026, we expect lower growth of 2pc, 1pc, and 1pc, respectively, as the market 'takes a breath' and as productivity gains catch up to prices.
Stagnation or even a down-shift in prices was still possible but only if there was "a multi-year interruption", Mr Lefroy reported, to a combination of commodity prices, production, or interest rates.
Not all states the same
While Rabobank figures show 6pc year-on-year growth for 2020 for Australian farmland, the difference between states is stark.
Tasmanian farmland has continued its stellar growth recording a surge of 28.3pc in a year, taking its median farmland price to $15,999/ha.
Victoria came in second, both in terms of its 15.8pc growth and $10,981/ha.
As a whole, Queensland has Australia's lowest farmland price of $2734/ha but it grew a hefty 15pc.
Western Australia was next with a 14.1pc increase taking its average to $3244/ha.
New South Wales was far more restrained with a 6.1pc rise, reaching $5653.
South Australia recorded the lowest growth, clocking up a modest 1pc.
Value pockets in every state
Within states too, the upward trend in prices was far from uniform, the report showed.
In the Young, Yass, Wagga and Albury regions of NSW, for example, median prices had almost doubled in the last two years, while Lachlan Valley farmland prices were relatively stable.
Other regions that had not seen the same increases were Dubbo, Griffith, Bourke, Coonamble, Mudgee and Inverell.
It also revealed huge differences in value based on rainfall, reliability and productivity.
"For those buyers who do their homework and have the flexibility within their business to seek inter-regional purchases, there may be greater productive value to be had for their capital investment," Mr Lefroy said.
Australia's most expensive farmland per millimetre of rainfall is South Australia's Yorke Peninsula, with the top price paid approaching $60 a hectare per millimetre of annual rainfall.
Rainfall, though, isn't everything when it comes to the performance of Australian farmland.
To help better gauge value, Rabobank has partnered with Digital Agricultural Services to measure both the productivity and reliability of different farming regions.
Productivity increases from left to right and variability increases towards the top of the chart.
Put simply, regions in the lower right hand column of the chart hit the sweet spot of reliably high production.
The smaller the bubble, the lower the price. The colour of the bubble simply shows which state the region is in.
For example, the chart shows that the red region priced at $2574/ha presents incredibly good value compared to the less productive and less reliable region, still in Queensland, priced at $8368/ha.
Wes Lefroy was reluctant to name the regions publicly.
Still, he said, the principle was sound and was supported by data suggesting that farmers were looking beyond areas where price growth had outstripped productivity performance.
Buyers look beyond
In the early stages of the current phase, Mr Lefroy said, land price growth was primarily driven by four main regional factors.
They were high and/or consistent rainfall, a lot of farmers with expansion plans, lifestyle benefits, and the ability to grow high-value or multiple production types.
"Now, regional trends have been overwhelmed by the strength of the macro factors," Mr Lefroy said.
"That is, regions that scored low on those four metrics are now recording upticks in growth, fuelled by strength in the three macro factors: prices, production, and interest rates.
"This includes demand from both local buyers and buyers from higher-priced regions who have expanded their search for land with greater productive value."
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