Weekly Property Review: Land Use Conversion – Does It Pay?
CONVERTING an agricultural country from one product to another does not automatically increase the value of the land, but it is a strategic decision made by some producers given the potential income.
There have been a number of recent examples of the sale of agricultural property in eastern Australia where land use has changed, for various reasons.
Will Gurry, the director of JLL Agribusiness, explained that the term “highest and best utilization” governs the true value of a property.
“For example, in the Riverina of New South Wales, many sheep stations have recently been converted to irrigation and arboriculture, such as almond trees, and development is dramatically changing the value of land,” a- he declared.
However, it seems the same cannot be applied to dairy properties converted to pasture beef.
In recent years, a significant number of dairy farms (typically with a capacity of 300-400 cows) in southwest Victoria have been acquired for beef.
Mr Gurry said that while land had an underlying value driven by dairy or beef production, beef cattle were “the highest and best use” because of the current high prices.
He said that in these cases the land value would not be changed as there is no significant change in agricultural development.
“A dairy farm converted to pasture is only part of the market cycle. Producers who are able to purchase additional land may earn more money due to high beef prices and low interest rates.
“Beef prices give producers the option or financial backing to swallow what could have been a smaller neighboring dairy farm,” Gurry said.
Rob Rickard, Elders
Rob rickard from Elders Camperdown has been inundated with inquiries for the largest plot of land ever offered south of the Princes Highway in southwest Victoria.
The neighboring 647ha Karrara Farms and the 409ha Acacia dairy are located in Ecklin South in a reliable and high rainfall dairy region.
Spanning 1055 ha, the two properties combined could cover between 20,000 and 25,000 DSE.
Together, they offer expansion opportunities for existing dairy businesses, or for producers looking for a larger operation for beef, sheep and / or fodder production.
In the 1930s, most of the landowners in southwest Victoria operated either sheep or cows. Over time, most converted to dairy businesses.
Mr. Rickard said today that the trend was reversing.
“In the past 18-24 months, a large percentage of the dairy farms in this region have been sold and converted to beef pasture simply because it is a reliable country year after year – with good seasons and constant precipitation throughout the growing seasons. . “
Mr Rickard said interest is coming from beef and mutton producers in New South Wales, South Australia and all parts of Victoria.
“Interstate interest is rare. It is unusual to find a farm of this size as most properties in the area would average 200 ha.
Mr. Rickard believes that the scale has held back the prices.
“Most of the local dairy farms are between 300 and 500 ha and it is not big enough to attract outside businesses or farming families. That’s why there is so much interest in selling these neighboring properties – it’s an economically viable proposition.
“Potential buyers are looking to move their operations to this area, many others see the property as a safe and secure place to finish beef and sheep, or to add security to their existing operation,” he said. declared.
Mr. Rickard anticipates that the two properties will be secured by a single entity for an amount between $ 18 million ($ 17,000 / ha) and $ 20 million ($ 19,000 / ha) or approximately $ 700 / DSE.
“In my opinion, this would be the cheapest and most reliable dollar per DSE grazing country in Australia – this is because these properties are located in a dairy area which, until recently, was depressed. “
Mr Rickard said the cost of converting the country from dairy to sheep or beef had no real impact on house prices.
“The assessment does not take into account the extensive dairy infrastructure, only the flexibility of the land for the future,” he said.
Phillip Kelly, Colliers International
In Queensland, western countries in more marginal areas are experiencing a shift from livestock production to sheep, lamb and wool production.
Necklaces International Philippe Kelly said the reasons included the expansion of exclusion fencing and a general recognition that the land of Mitchell Grass Downs is better suited for sheep than cattle.
“Part of this country switched to ranching, and then when the drought hit the owners realized the sheep would perform a lot better.”
With the elimination of certain sheep infrastructures, Mr. Kelly declared that it would be necessary to benefit from a contribution of capital (maintenance and water points) so that the bovine properties become ovine again.
“Land values will not necessarily improve as a result. Producers are more concerned with yields per hectare, the survivability of sheep during dry spells compared to cattle and the adequacy of the country.
The risk that any producer country will convert in this way misses the commodity cycle.
Mr Kelly said the key was to take a longer-term approach.
“No one wins by pursuing a deal. There is a time cost involved when an owner moves from one business to another, and an existing business will have to absorb short-term capital expenditures or losses in the business.
He said the change in farming methods had prompted some grain producers to move to more marginal countries.
“The traditional herding areas of Condamine, south of Meandarra, Inglestone and Westmar are now involved in large-scale grain production. “
“Converting buffalo grass or native grass to a grain paddock can be done fairly quickly, but it can result in higher capital costs, such as purchasing machinery,” Kelly said. .
Stephen Cameron, Herron Todd White
Stephen cameron Evaluators Herron Todd White at Toowoomba agrees that Mitchell grass downs country in Queensland with the benefit of exclusion fences allows producers the opportunity to return to sheep, and this has been aided by recent prices for fat lamb and wool.
“The ability to source cattle at the moment is exceptionally difficult and producers in the traditional sheep country have the potential to make sheep more profitable than cattle from a cash flow perspective. “
Mr Cameron said that ultimately the market will determine the value of a property (and the best business application), especially if it has a dual purpose (i.e. it can shelter sheep and / or livestock).
“Exclusion or cluster closings are reflected in the underlying value of a property, not in the transitional products. The traditional sheep country is more likely to be valued on this basis.
Mr Cameron said there was a perception that standard dairy farms in South East Queensland were attracting a premium beyond grazing operations, but that had changed.
“Drought and the cost of animal feed prompted a number of dairy companies to market and these properties were sold for grazing and / or mixed farming, which is now considered its highest level and The highest. alternate best use.