Farm prices slowing down

Farm property valuations showed a slight weakening in the second half of 2010 after something of a mini-recovery in the first half of the year, according to First National Bank (FNB’s) third quarter National Farm Valuations Index.

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In the past decade, South Africa’s farm property sector experienced a boom with the half-yearly average national farm valuation reaching a year-on-year growth peak of 47,5% in the second half of 2008, before tapering off to a record year-on-year decline of 4,4% in the second half of 2009, according to the FNB report.

The farm price index then recovered somewhat during the first six months of 2010, with 15,2% positive growth, before slowing to 8,5% year-on-year growth in the second half of 2010 to date. According to FNB, the 2007/08 boom in valuations growth was probably due to a surge in food prices through 2006 and 2007 and strong production growth in 2007/08.

Through 2009, however, Statistics SA reported a decline in both food price and agricultural production growth which, according to FNB, would explain much of the 4.4% farm valuations decline in the second half of 2009. The mini-recovery of valuations in 2010 was supported by a mild recovery in national agriculture production, and a sharply lower cost of finance compared to 2008 and early 2009.

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But, with interest rate cutting having declined since August 2009, it was possible that the positive effect of the interest rate stimulus was wearing thin in the second half of 2010, slowing down year-on-year growth in valuations once more, said the FNB report.

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