Farm prices hold up; farm investor MyFarm eyeing dairy opportunities

Tuesday 15th September 2015

Farm prices are holding up well on a drop in volume over the winter months, according to the latest Real Estate Institute of New Zealand rural farm sales data.

There were only three dairy farm sales recorded in the past month and the median sales price per hectare for dairy farms for the three months ended August fell to $26,906, compared to $35,304 for the three months ended July and $43,125 for the three months ended August 2014.

But the REINZ Dairy Farm Price Index, which adjusts for differences in farm size and location, rose by 17.3 percent in the three months to August, compared to the three months to July.

REINZ rural spokesman Brian Peacocke said the low number of sales makes the index volatile and can present a confusing picture of what’s happening with dairy farm prices.

He said the impact of falling global dairy prices and a much-reduced farmgate milk payout this season had yet to make an impact on dairy farm sales, though it was being closely monitored by the industry.

There had been only one forced sale that he knew about so far, and that had apparently been building up for some years rather than a result of two seasons of low payouts.

He said caution remained the dominant factor within the rural sector, particularly in the dairy industry, where prudent operators are trimming costs.

“Reports indicate a reduction in dairy cow numbers, with heavy culling of poorer performing and temperamental cows and heifers,” he said.

Farm investment company MyFarm said it was looking at dairy farm investment although “almost certainly farm values will fall,” it said in a newsletter out today.

MyFarm said buying a dairy farm in the midst of low milk prices could make sense if good buying opportunities became available and the long-term outlook remained good for dairy returns.

The timing for investment feels similar to 2010/11, when farm values fell because of a change in farm credit conditions, although interest rates are lower today, it said.

MyFarm, which has $550 million of farm assets under management, said it doesn’t believe an expected fall in farm values will be anywhere near as dramatic as four years ago, especially when it comes to high quality properties with resilient production systems and the ability to generate a 5 percent earnings before income tax return at $6 per kilograms of milk solids.

“These are the types of property that we, at MyFarm, are starting to look at,” the newsletter said.

Overall there were 20 fewer farm sales overall for the three months ended August, compared to the three months ending July and 10.6 percent fewer than at the same time last year. Most of the activity came from the sale of grazing properties, which accounted for a 45.2 percent share. Finishing properties accounted for 17.8 percent, and horticulture properties for 16.5 percent of sales.

The median price per hectare for all farms sold in the three months to August 2015 was $27,872 compared to $26,590 recorded for the same period the year before, and virtually the same as the three months ending July.

Peacocke said brighter spots within the industry include exchange rate falls, a reduction in interest rates, a strong beef market, a slight turnaround in prices at the most recent GlobalDairyTrade auction, and support from the financial sector for the majority of clients, at this stage.

“Of concern, however, and causing nervousness throughout the northern and eastern regions of the country, is the prediction of an El Nino over the summer. That would be most unwelcome.”

BusinessDesk.co.nz

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