Finance Finance News While the government throws money at the bush, farm prices are booming Updated:

While the government throws money at the bush, farm prices are booming

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Yes, drought is heartbreaking, this drought is terrible in parts and many farmers and rural communities are doing it very hard indeed – but there’s also a whiff of the pork barrel about the government’s rush to throw half a billion dollars at the bush when farm prices are booming and farm management deposits are fat.

One of the criticisms made of farm aid is that it props up farmers who don’t have viable businesses.

Barnaby Joyce, a rural accountant by previous trade, has copped flak for suggesting a farmer who hasn’t made a profit for a decade would be better off selling up.

And here’s the paradox: it’s a good time to be selling.

Farm prices are holding up despite the drought and after booming for several years.

While farmers have been forced to sell off cattle and sheep as the drought bites, fewer rural properties have come onto the market on the east coast, supporting prices.

Rural Bank’s annual Australian Farmland Values report found the median price of Queensland hectares jumped 15.7 per cent last year while New South Wales was up 9.6 per cent, Victoria 14.1 per cent, South Australia 17 per cent and Western Australia a more modest 3.8 per cent.

The drought hasn’t hurt the value of agricultural property. Photo: AAP

And, while it’s not part of the drought story, it’s worth mentioning prices in the top end of the Northern Territory soared 60 per cent and the NT cattle regions were up 41 per cent.

Rabobank’s July Australian Agricultural Land Price Outlook expected land price growth to slow over the next 18 months, especially in the eastern states, but not fall.

The report said agricultural land prices had been “on fire” for the past two years, topping off five years averaging seven per cent compound annual growth.

The report’s author, agricultural analyst Wes Lefroy, said there has been a divergence in the market between the areas affected by drought and those with better rainfall.

“While ongoing strong demand for agricultural land has continued to accelerate price growth in Western and South Australia, in the drought-affected eastern states, a shortage of properties on the market has primarily been supporting price growth,” he said.

“Many would-be sellers in these areas have chosen to hold on to land until conditions improve and this has effectively created a ‘liquidity squeeze’ in the agricultural land market in those regions.”

Mr Lefroy thinks some potential vendors will start to lose patience with riding out the drought and the number of properties on the market will increase.

“That said, across the board, a fall in agricultural land prices is considered unlikely, with farmers’ balance sheets remaining generally strong across most sectors and regions, and with support from a number of macro-economic factors. 

“These include a low and falling cost of funds, a weak and falling currency and a favourable price outlook for most commodities.”

A spot check with a mate at the coal face – or the dust bowl – of Queensland and New South Wales rural values found prices are holding up and are expected to rise again when the drought breaks.

He said the big story of global protein demand continues to run, helped along at present by the swine flu outbreak.

The government is now promising even cheaper money for farmers sitting on net assets worth millions of dollars, money that is likely to mean fewer properties come onto the market.

The latest ramping up of “don’t call it welfare” for the rural sector includes interest-free loans for two years followed by interest-only payments for another three years.

That’s part of a half-billion-dollar package that includes help for rural non-farm businesses and extra money for shire councils.

The political parties are competing to be seen to be the most caring about the bush.

Cynical souls might suggest the care for the National Party has been heightened by the inroads One Nation has made in its base.

deputy pm pacific island fruit
The Nationals party, led by Michael McCormack, lost ground to One Nation. Photo: AAP

As previously reported here, another paradox amidst the genuine hard luck stories is that farm management deposits (FMDs) were at record highs in September. 

FMDs allow farmers to sock away pre-tax cash in good seasons and use it in bad times, whereupon the withdrawals are taxed as income. Of course, if a business is losing money, no tax is paid on the withdrawals.

And underlying the latest cash splash is a conundrum for the government:

If climate change isn’t the issue with this drought, if it’s a natural phenomenon, why aren’t farmers left to manage their businesses to cope with it?

But if climate change is an issue, making this drought not a normal part of farming business, why isn’t the government doing anything serious about that?