AFTER record crop harvests WA’s farmers are confidently driving capital into off-farm investments that are contributing to a surge in rural property prices according to analysts.
AFTER record crop harvests WA’s farmers are confidently driving capital into off-farm investments that are contributing to a surge in rural property prices according to analysts.
Latest figures from grain handler CBH show Western Australia’s grain harvest stands at 14.2 million tonnes – an all-time high.
As a consequence farmers are confidently investing, however, one analyst believes farmers might not have the cash flow for big investing this year.
ConsultAg agricultural consultant David Falconer said the effects of the poor 2002 season would be felt this year.
“There will be little pool payments coming through in 2004,” he said.
“December 2001 harvest was a good year so the pool payments in 2003 were good. But because December 2002 was bad those pool payments won’t come through this year so budgets are tight.
“So while 2003 was a good physical result we won’t see some of that cash until 2005.”
However, Mr Falconer said farmers were confidently investing.
“There is a tremendous amount of confidence but it needs to be cautioned by the lack of pool payments,” he said.
Property and stock portfolios are the main areas receiving increased activity, however, on-farm investments and debt clearing remain a key priority for some farmers, according to BankWest chief manager WA Country Jim Watson.
“This year there will be a range of things that will happen. There will be some farmers who have had some tough years that will be paying off debt. Others that have gone OK and all of a sudden have had a good year will buy machinery and pour capital into on-farm maintenance like fencing,” he said.
“Those that have had some good years will be looking to divest in off-farm interests.”
Mr Watson said that despite a surging Australian dollar, farmers had profited through higher yields.
Bedbrook Johnstone rural consultant David Bedbrook said many of his clients were seeking machinery and vehicles.
“The machinery dealers are enjoying improved business. Farmers are buying equipment and consumables and things like higher technology machinery, the GPS etc,” Mr Bedbrook said.
“There have been greater levels of interest in machinery on-land than we’ve seen for a while. The cost of debt is low and easy to get and equity has grown in the past decade so they can take on more debt.
“They spend [before the harvest] in anticipation but there will be another flurry in February-March.”
Western Australian Farmers Federation president Colin Nicholl said shortages in machinery supplies could prompt off-farm investing.
“There is a shortage of new farm machinery and that will cause some farmers to look to invest off-farm,” he said.
Bell Potter Securities head of wealth management Australia Heather Zampatti said she was experiencing record activity from rural clients.
“They are upping their share portfolios significantly,” she said.
Ms Zampatti said farmers began buying more shares late last year and expected the trend to continue during the next few months.
She said while many farmers inherently held AWB and Wesfarmers stocks there was an increasing trend to diversify the portfolio.
Mr Nicholl said the bumper season appeared to be pushing land prices up with significant increases in purchase prices.
“The land values have increased significantly in the past six months,” he said.
Mr Bedbrook agreed that real estate was hot property in regional WA.
“In the good areas real estate is going for record prices. Some areas have had a 50 per cent rise in the past three years,” he said.
“It’s due to higher production, good prices and a shortage of land.”
Mr Falconer said farmers should devote at least a third of their capital toward off-farm investments.
“It makes succession easy when there is an asset there,” he said.
“If $3 million is tied up in the farm it becomes difficult.
“More people are beginning to do that.
“We suggest a third be invested in land, a third off-farm and a third on machinery, stock, grain pool and cash.”