Despite residential real estate facing an increasingly struggling market, agricultural land is experiencing a strong increase in demand. The effects of the Covid-19 pandemic have caused a surge in food and fibre production resulting in agricultural land prices being driven up. Rabobank agricultural analysts have confirmed that agricultural land is outperforming other markets primarily as a result of high farm profitability. Whilst much of the east coast of Australia has been facing a severe drought, sales caused by financial pressure are expected to remain low as improved cash flow from increased production supports these regional areas. Even in light of the drought, farm operating profits are at a three year high in the western states as well as Victoria and Tasmania.
The export market may be facing a less certain future. More export restrictions are expected to be put in place following China’s restrictions on Australian beef and barley. China faces increasing pressure from the US to engage in bilateral trade deals which may cause a diversion away from Australian produce. Despite this increased volatility in international export markets, globally there is an increase in demand for food and fibre. Australian exporters need to be aware the future with China is uncertain but there are other opportunities emerging. Ultimately the combined impact of unprecedentedly low interest rates with the state of uncertainty for the future of most other asset classes has allowed agricultural land in Australia to demonstrate its stability and counter-cyclical nature in turn revealing its appeal as an investment.
