Following a sixth consecutive year of agricultural land price growth in Australia, rural lender Rabobank believes a downward correction is very unlikely.

According to ABARES data, agriculture land prices represent a 41 percent increase nationally over the six-year period.

Rabobank senior agricultural analyst Wes Lefroy said despite a sharp rise in land price growth, he expects the market to remain sustainable at these levels.

“In the short-term, the fundamentals of the land market remain extremely strong,” he explained.

Mr Lefroy said interest rates, productivity output and costs, and commodity prices were the three biggest drivers for land prices.

“Over the past six years, nationally, these fundamentals have been the most supportive they have been over the last 30 years,” he said.

“The cost of funding remains at the lowest point on record, the Rabobank Commodity Price index remains at its highest point on record, and production levels in 2020 were well above average.”

The price per unit of productivity nearly doubled in some regions of Australia from 2012 to 2019, according to analysis from Rabo and Digital Agriculture Services.

Mr Lefroy suggested agricultural land price could overshoot productivity in the future as it has been growing at a much faster speed.

“Theoretically, if the price of land has outstripped productivity growth, it may imply land is over-valued,” he said.

“However, it is important to recognise that pure returns aren’t the only reason for buying. For example, in many regions, large farmers and graziers now border each other, and are willing to pay a premium (20-40 higher than the market) to unlock economies of scale.

“Similarly, buyers can place value on risk diversification, or make purchases for succession reasons, which can cause the price to deviate from the productivity of the land. These factors support the sustainability of higher prices in the medium term.”