Larry Schlesinger, Reporter Australian Financial Review
Rural property veteran David Goodfellow says farmland values, which have surged 15 per cent per annum over the last five years, will continue to increase over the next two-three years despite rising interest rates and inflation, especially in the livestock sector.
Mr Goodfellow – who has managed and grown large farming portfolios for the likes of China’s Rifa Salutary and the Ontario Teachers’ Pension Plan, and is now managing director of agribusiness at CBRE – said agricultural commodity prices typically rose when inflation and interest rates started to climb.
High commodity prices and the scarcity of prime farmland relative to strong demand from both farming families looking to expand and corporate investors has fuelled the last few years of stellar price growth after the ending of the drought.
“We should have confidence that commodity prices in the main should remain well above what they were five to 10 years ago,” Mr Goodfellow said in a presentation last month to the Marcus Oldham agricultural college in Geelong.
Large institutional investors, which had worked out the diversification benefits to their portfolios of investing in farmland and agriculture, would continue to pour money into the sector “because they believe it is a good hedge against inflation”, he said.
Australia hit its highest annual level of inflation in more than two decades in the March 2022 quarter. Mr Goodfellow said the outlook for farm prices was still pretty strong for “at least” the next two to three years.
“As long as commodity prices remain firm … we will see [farmland] prices continue to rise,” he said.
Fuelling this momentum were farmers who had originally planned to get out of the industry after enduring the last crippling drought, but had now realised that the “dream time” conditions (national farmgate production is forecast to reach a record $81 billion this financial year) they had been waiting a whole generation for had finally arrived, he said.
“[These farmers are saying] ‘lets make the most of it, let’s really enjoy it’,” Mr Goodfellow said.
Leading the charge in terms of price growth over the next few years, he predicted, would be prime grazing country, which has so far lagged the much stronger performance of broadacre cropping farms, benefiting from record wheat and barley prices.
This lag was because while croppers enjoyed a much quicker recovery in their balance sheets, cattle producers faced a lengthier process to rejuvenate their herds, having downsized them during the drought, he said.
“For some of these cattle producers it’s 2.5 years after the drought before they see cash flowing into their business, whereas croppers get that money in 12 months.”
He added: “The livestock sector is just starting to get going now because we are about 2.5 years after the drought. Producers are getting cashed up, bank managers are smiling, and they are all competing against each other for land.”
Mr Goodfellow said farmers were becoming more sophisticated when it came to making acquisitions, focusing on the income potential of a particular property (in terms of how much beef, wool or wheat they can yield) and its rainfall reliability, “rather than what the farm down the road sold for last year”.
“What we are finding in the market now, when we present properties for sale, is that farmers want to see the rainfall data, they don’t just want to hear the sales spruik.
“People want to get their teeth into the analysis and do the maths. Once they can take the guess work out of their feasibilities they can do the numbers and work out what they should pay,” he said.