A DRY, warm start to the season and effects of COVID-19 appear to have dampened WA farmers' appetite for investment.
According to Rabobank's latest farmer confidence survey, 20 per cent of WA growers are looking to expand their operation in some way, compared to 30pc earlier in the year.
However, 72pc (up from 65pc) intend to maintain their current investment levels, suggesting any uncertainty is causing farmers to sit tight.
Rabobank regional manager for WA, Steve Kelly, said the adverse start to the season and pandemic, which caused uncertainty around markets and inputs are likely to be the reasons behind less intention for farmers to invest.
"The warm, dry conditions that we had in April contributed to the drop off in investment intentions since the last survey a few months ago," Mr Kelly said.
"The other aspect is that this survey was done during COVID-19, so I think the uncertainty at the time was most around trade for markets and inputs, not so much the pandemic because I think generally farmers felt as though they would weather the storm."
Mr Kelly said the trade issues were most likely around wool and barley markets, with China being a dominant buyer.
Of those farmers seeking to increase their assets, the majority plan to boost their on-farm infrastructure (58pc, previously 36pc), followed by purchasing new plant/ machinery (38pc, was 21pc), investing in property (37pc, formerly 34pc) and pasture/fodder/crops/fertiliser (37pc, was 18pc).
Of those looking to increase investment, WA growers recorded the strongest appetite for new real estate purchases around the country - at 37pc compared to the national average of 24pc.
Mr Kelly said there were key fundamentals in play that have resulted in a strong property market.
"Profitability over the past three years has been quite good, in particular from the 2018/19 year, commodity prices have also underpinned that profit and the outlook generally has been good, except for impacts from COVID-19," he said.
"A big factor in WA is that we have had fewer properties available, which is two fold; one reason is across our portfolio we have seen that over the last three years land values have increased 35-40pc as an average across grain/mixed farming properties in WA, which is built on good profits.
"I think listings have also been down for a number of reasons - we have had a significant trend upwards in agriculture and therefore, vendors have been less willing to sell and are prepared to ride the wave.
"There is also a structural shift in WA that there are less farmers - compared to five years ago, so by that nature alone there will be less listings on average because there are less to-be vendors in the industry."
Demand to lease land has also increased which Mr Kelly said had likely increased due to limited land availability.
"There is huge demand from farmers to lease land - Rabobank estimates that 38pc of farmers in WA have leased land in their operation, so they are more prepared to take on leased land, which means that vendors don't have to sell," Mr Kelly said.
"I think by the general nature farmers enjoy purchasing land, so I'd say with interest rates being low, farmers would prefer to purchase, however leasing provides a really good avenue for those farmers that want to expand but not carry the same risk."
Mr Kelly said he hasn't necessarily noticed a trend among farmers investing in infrastructure/ machinery in place of property, but on-farm asset investments have seen a significant increase.
But he believed there has been an even bigger trend towards investing in soil improvement and amelioration.
"Perhaps before we might have expected the poorer farms to sit there unsold for some time, but now with Reefinators, ploughs and other soil improvement techniques, farmers are prepared to buy land and improve it," he said.
"There is also a knock-on effect there as vendors who have good farms might have higher expectations of what their land might be worth."
Mr Kelly said the appeal to purchase poorer country and improve it, or just improve already-owned land is the capacity for a high return on capital from increased productivity.
"Farmers who don't have the capacity to expand are seeing a significant return on capital, so rather than buying more hectares, they're buying more productivity per hectare," he said.
Mr Kelly said interest rates are also a major factor in farmers determining whether it's best to buy or lease.
"In some areas, the cost of buying land based on an interest per hectare basis is lower than a lease per hectare, compared to most landlords targeting a 5pc lease."
Demand for leasing has provided family farmers a viable option of not selling, by becoming landlords.
And purchasing to lease out is a common model with corporate farmers and investors.
"I think most family farmers perceive that corporate buyers are here to stay and therefore, there is strong competition when farms do come up for sale, so it's not uncommon for us to have a number of clients going for the same property," Mr Kelly said.
By commodity, the survey found that grain producers hold the strongest investment intentions, with 27pc looking to increase their investment over the next 12 months and the remaining 73pc intending to maintain investment at current levels.
Mr Kelly tipped the upswing from grain growers to be driven by more improvement in farms.
"I think the capacity to improve farms has led to more intention to invest in grain farms, which also includes mixed farming operations," he said.
"We're also seeing corporates predominantly choosing grain properties.
"And looking at profitability over the last three years, grain is the primary driver.
"You can't underestimate the mixed farmer who has confidence in the livestock enterprise, so there has been an enormous comfort from a diversified income and that confidence has led to the increase in capital expenditure that we're seeing."
Looking ahead, Mr Kelly expected the property market to remain firm as "I think profitability will continue for 2020, based on wheat and sheep meat in particular".
He anticipated the lack of listings to continue and interest rates and the Australian dollar to remain low, which would contribute to a firm market.
"But we still need rain and in particular for this year because we don't have the reserves from the start to winter that we normally would have expected," he said.
"Thinking about the corporate and farmer psyche, if you are going to invest in any asset class in the world right now, agriculture should be right at the top of the list.
"And when thinking about agriculture in Australia, Western Australia ought to be a number one location based on recent weather and profitability.
"So agriculture is a top asset class and WA is a dominant factor in that."
