New Zealand dairy farm prices drop 18 pct as environmental, foreign investment concerns bite
NZ Herald | 30 October 2018
NZ dairy farm prices drop 18 pct as environmental, foreign investment concerns bite
By Jamie Gray
Environmental rules and tighter restrictions on foreign ownership are denting dairy farm prices which have fallen more than 18 per cent.
The Real Estate Institute of NZ said the median price per hectare for dairy farms had dropped by 18.3 per cent during the past 12 months. The median size was 178ha.
Reinz's dairy farm index, which adjusts for differences in farm size and location, dropped by 15 per cent in September compared with a year earlier.
Across all farm types, the median price for the three months to September was $25,447, down 7 per cent on the same period a year, but Reinz's all-farm index gained 4 per cent over same comparative periods.
Reinz said the early spring farm market for all farms was subdued, with 21 fewer farm sales than for the three months to September last year.
The institute's rural spokesman, Brian Peacocke, said there had been a significant fall in the number of farm sales over the three months, and they were down by 35 per cent compared with two years ago.
Economic issues beyond the farm gate, "both political and financial", continue to impact, and the positives were being offset by the negatives, he said.
Colliers International, in its Canterbury Dairy Market Overview, said it expected dairy farm prices in the province - which is responsible for 21 per cent of the country's milk production - to decline this season.
"Market sentiment appears subdued, due to the limited liquidity, the threat of Mycoplasma bovis, the removal of international purchasers, the risk of further environmental regulations and the performance of Fonterra," Colliers said.
Colliers' associate director Greg Petersen said farm prices were going backwards.
"There is not the same competition out there between purchasers for prices to strengthen," he told the Herald.
Now calving has finished, Petersen expected more farms to come onto the market from through to April.
From their 2014/15 peak, prices dropped with the ensuing low payouts, recovered a little, and are now easing again.
"Looking further out, there are more clouds out there than we would have anticipated," he said.
Con Williams, head of investment research at rural syndication firm MyFarm Investments, said dairy farm prices were on a "slow burn" lower.
"There are quite a number of properties for sale and they are probably not shifting that quickly," he said.
"The reduction in foreign investment is quite significant, particularly for large-scale operations," he said.
"The combination of that, together with tighter bank credit, is making it a challenge to sell some of those large-scale operations," he said.
Williams said he expected dairy farm prices to "trundle along" as long as the milk price stayed above $6/kg.
"If we do get a material drop in the milk price, then that could add a bit more pressure on farm prices," he said.
Dairy farm prices peaked in 2014-15 around the time Fonterra's farmgate milk price reached a record high of $8.40 a kg.
The farmgate milk price for 2018/19 is $6.25 to $6.50/kg, down from last season's price of $6.69, but ahead of Dairy NZ's estimate of break even of $5.40 to $5.50.
Late last year the Government directed the Overseas Investment Office to raise the bar in overseas applications to buy sensitive New Zealand land.
Farmers also face tighter rules regarding nitrate runoff into the nation's waterways.
"The economic reality, when you factor in all the environmental regulation, restrictions on foreign investment, long-term milk prices - all those factors that people talk about - is that probably we are still anywhere between 10 to 20 per cent overvalued for dairy assets," Williams said.
The Reserve Bank, in its latest financial stability report issued in May, said the dairy farming sector remained highly indebted, and vulnerable to a future downturn in dairy prices.
"Dairy farms also face a number of longer-term challenges, including the impact of the response to environmental concerns," it said then.
The central bank's next report is due on November 28.
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