WESTERN Australian farmland prices hit a record high of just over $6000 a hectare on average in 2022, following three consecutive good seasons and with strong commodity prices boosting business margins and facilitating a "cash splash" by growers.
There has also been a lack of supply of properties coming up for sale to meet the increase in demand, further underpinning price rises.
The 2022 average farmland price jumped 22.5 per cent from the previous year and indications were prices were on track for another year of double-digit growth in 2023, according to agribusiness banking specialist Rabobank, in its newly-released annual Australian Agricultural Land Price Outlook.
This sentiment is backed by key WA rural real estate representatives, who say they can't see farmland prices coming back any time soon.
The Rabobank report used sales data from Digital Agricultural Services (DAS) and showed arable farmland prices in WA were up 29.7pc year-on-year.
The high rainfall region of Bunbury had the most valuable land at $19,000/ha on average.
The more challenging, low rainfall areas of WA had the highest percentage increases in median land value of any region in the State since 2019.
Mid West land values rose 133pc in the past four years, followed by the northern Wheatbelt at 131pc and the southern Wheatbelt at 111pc.
Many farmers still have grain to sell from the 2022-23 harvest, so there is cash around.- Rabobank agriculture analyst Vitor Pistoia
In the lower rainfall areas, the range of property values was wide last year - with lower stability in the drier areas and increasing values for properties at the upper end.
Sales ranges were tighter in areas with medium to high rainfall, which were less impacted by production variability than those in low rainfall zones.
Rabobank agriculture analyst and report author Vitor Pistoia said WA farmland prices were the highest they had been since the company started tracking values in 2020.
He said the major underlying factor supporting the high prices paid for land in WA last year was strong margins.
"Margins are affected by commodity prices and production yields and this combination has been particularly good in the past three to four years, especially last year," Mr Pistoia said.
"With margins being high, people are in a better position to buy land.
"For this reason, there has been stronger competition at auctions - with multiple bidders for most properties."
Mr Pistoia said average prices were also boosted by the increase in the number of sales of more than $10 million for cropping land - at 12pc - and grazing land - at 3pc.
"These big sales have been increasing because land values are going up and deals are going up," he said.
"The corporates are coming into the market and land parcels are increasing in size.
"Demand is huge and property supplies are tight.
"The market has been very hot."
As in the rest of Australia, Rabobank expects land values in WA will continue to rise and show double-digit growth in 2023 and 2024 due to the good financial performance by farmers during the past three seasons.
"Many farmers still have grain to sell from the 2022-23 harvest, so there is cash around," Mr Pistoia said.
He said a slow down to marginal land price growth could be expected after 2024, as weather forecasts indicated a changing pattern to El Nino, which typically bought drier conditions to much of Australia.
"With drier weather, productivity falls off and there will be less cash in the system," he said.
"So we could expect to see some cooling off in the market if the El Nino eventuates.
"It won't be like a bubble bursting, but more a slowdown in the longer term, of the next five to 10 years."
Rising interest rates, a slowing in global growth and increases in the Australian dollar will also curtail longer term investment plans by farmers and other groups.
Cash already available in the system and stocks of grain and livestock ready to enter the market remain the key factors driving land price growth.
Real Estate Institute of WA rural spokesman Mark Murray said another factor contributing to strong demand for land was the fact the State had one of the safest rainfall patterns in the world from an agricultural perspective.
"We have a clean, green image and big farm sizes that allow economies of scale," Mr Murray said.
"These are all attractive incentives for investors - locally, domestically and globally.
"We are also coming off two good seasons across much of WA, commodity prices are historically high and there are good equity levels in farm businesses for securing more land."
Mr Murray said he would expect these trends to continue and the price of agricultural land in WA to stay high, despite increasing input costs potentially being a dampner on demand.
"We have seen a fantastic break over some agricultural regions in 2023 and that in itself bodes well for land values this year," he said.
Ray White Rural WA director Hugh Ness said a $6000/ha average price across the whole State would have been skewed by some big deals.
Despite this, he said there were many investors circling the market and farmers who wanted to expand their footprint.
"We are coming off three good seasons, but the trend for increasing land values has been going on for more than that," Mr Ness said.
"Relatively speaking, WA is better value land than in the east and we are seen by overseas investors as a safe place to invest."
Mr Ness said there had been a lack of supply of farmland in WA for about seven years and more and more farms were being amalgamated.
He said he did not see demand for land abating in the short-term.
Elders Real Estate senior rural real estate executive Simon Cheetham said he was definitely not surprised to see another report indicating WA farmland had reached a new high on an average per hectare basis.
"We've seen very strong demand and limited supply of farmland over most of the State for some time," Mr Cheetham said.
"All rainfall zones and regions are sought-after, with some of the largest increases in value per hectare being seen in the Geraldton and Esperance port zones.
"The key drivers of the increase in land values has been analysed at length, with the succession of highly profitable cropping seasons being seen as the biggest of these.
"All indications are that land values are to remain strong into the foreseeable future."
Mr Cheetham said the Elders Real Estate agents continued to work closely with farmers who were assessing their future options for land sales.
He said it is thought land would continue to be tightly held and those who sell their property via a well-executed marketing campaign through winter and spring would be able to receive a premium price in 2023.
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