The first quarter of 2016 proved challenging for the Irish agricultural land market with farmland prices dipping, according to the latest Sherry Fitzgerald Land Price Index.
Following moderate growth in prices over the course of 2015, the price index has found that Irish land values dipped by 0.5% in the three months to March 2016. This compares to growth of 1% in the first quarter of 2015.
The average price of farmland in Ireland stood at approximately €9,750/ac at the end of March, which Sherry Fitzgerald says is on par with values recorded in the opening quarter last year.
A breakdown of the components feeding into farmland reveals that all three types of land recorded a slight dip in prices during the quarter.
According to Sherry Ftizgerald, this resulted in the overall average price per acre in Ireland failing to gain ground in the three month period.
Roseanne De Vere Hunt, Director, Head of Country Homes, Farms and Estates at Sherry Fitzgerald, said that land prices fell back this quarter, hampered by limited supply on the market.
“Following what was one of the wettest winters on record, most land sales have been delayed until late April/May.
“Prices are expected to stabilise in the coming quarters due to an anticipated increase in stock coming to the market.”
Prime Arable Land
Following growth of 1.9% during 2015, the land price index found that the average price of prime arable land fell by 0.7% in the opening quarter of 2016, to stand at approximately €11,600/acre.
Sherry Ftizgerald attributes this to quarterly price falls in the Mid-West and South-West regions of 2.4% and 2.3% respectively.
While the West region remained stable in the opening quarter of the year, prime arable land values were up 2.3% annually, according to Sherry Fitzgerald.
That said, it said this increase comes form a low base, with the average price per acre in the West standing at approximately €8,050 at the end of March.
It found that this decline in arable land values can be partly attributable to the global collapse in the price of grain.
Sherry Fitzgerald said that lower grain prices and higher costs of production are enticing cereal growers to cut production and look to other options, such as leaving land fallow or growing fodder crops instead.
Prime Grassland
The land price index found that a similar trend took place in mainstream grassland values.
Strong price growth in 2015 of 1.6% was somewhat counteracted by a 0.5% fall in the average price of prime grassland in the three months to March 2016 which stood at approximately €10,900/ac, it found.
On a regional basis, the land price index shows that the most significant fall in prime grassland values in the quarter was again recorded in the Mid-West, down 2.4% in the three month period.
Meanwhile, the Border region declined by 1.7% in the first three months of 2016 and 3.3% annually, while in the South-West values fell by 0.7% in the quarter and by 1.9% annually.
In contrast, Sherry Fitzgerald found that the Midlands region recorded price growth of 0.9% in the quarter and a notable 4.5% increase year-on-year.
Similarly in the West, although the average price per acre of grassland was stable in the three months prior to March, it was 4.6% higher on an annual basis, standing at €7,950/ac.
Marginal Grassland
Price performance in marginal grassland remains subdued and in the three month period to March, marginal grassland values dipped by 0.3%, bringing the average price per acre to €6,700, the land price index found.
Although little change has occurred at a national level, Sherry Fitzgerald says that a regional breakdown highlights the ongoing variations within the regional market.
Again, the Border region recorded the most notable downward movement in the average price per acre, declining by 2.5% in the quarter and 3.7% year-on-year. Moreover, it found the South-West saw values fall by 0.7% in the quarter and by 0.3% annually.
The only region to witness an improvement in marginal grassland values was the Mid-East, which saw a 0.7% rise in the quarter to stand at €7,700/acre.
That said, this followed a 0.7% fall in the previous quarter, which the Sherry Fitzgerald says shows the quarter-on-quarter fluctuations in price per acre of the poorer quality grassland.
All other regions remained stable in the three month period. Marginal grassland values currently range from approximately €3,000 to €10,000 per acre.
Agricultural land market outlook for 2016
Looking to the year ahead, Sherry Fitzgerald expects that the market should see a steady pace of activity, however, it appears unlikely that the agricultural land market will experience the same level of price growth that was evident in 2015.
Regional variations are expected to persist, which it says is based on a modest supply of land available for sale in some regions.
The uncertain outlook for milk, beef and tillage, cautiousness in the marketplace and reduced activity levels are all factors that could hinder price performance.
Furthermore, it says access to funding may also act as a barrier for purchasers for the rest of the year.
The outcome of the Brexit referendum will be a significant factor impacting market sentiment and it anticipates that in the short term, uncertainty surrounding the outcome could potentially hinder the market and, in particular, farmers’ expansion plans.
While the current strength of the Sterling and Dollar could increase the demand for larger plots of land from Northern Irish and overseas buyers in the short-term, Sherry Fitzgerald says that it is very uncertain how long that will last.