Is this the first sign that the rural real estate market is moving out of the doldrums with this strong listing, selling for a good price in Mid Canterbury?
With the gap widening in dairy from those with big debt and those with little, and payouts and prospects strong, prices had to recover soon.
Confidence is what drives real estate, and farmers and bankers will be pleased to see some evidence of optimism returning to that market. In September, there was only one dairy farm sold in the whole country.
On a per hectare basis, this sale seems a very good one based on recent sales, although when valued by its production it does not look excessive.
A substantial Mid Canterbury irrigated farm sold at auction this week has set a benchmark for local dairy land values, according to the auctioneer who sold the property. Peter Crean of PGG Wrightson Real Estate says there was strong interest at Wednesday’s sale of the 208 hectare Lismore property, which reached $8.95 million under the hammer.
“This is the first big dairy farm to go to auction locally for some time, and plenty of professionals involved in the industry, including rural bankers, valuers and farm advisers, took an intense interest in the outcome. “At more than $43,000 per hectare, which exceeded some people’s expectations, the sale price was justified by the quality of the farm itself, but also demonstrates the strength that the market still has, despite difficult recent times in rural property.
“It was a well attended sale with approximately 200 people present, an enthusiastic selling audience and one of the biggest turnouts at a local farm auction for several years.“This is a well-located farm with good infrastructure and the vendor set a realistic reserve, which was comfortably exceeded in bidding. While a local buyer secured the sale, there was also serious competition from the Waikato, considerable interest in investment in the dairy industry and encouraging signs for anyone considering selling a dairy farm,” he said.
The Lismore farm produced in excess of 307,000kg of milksolids last season from 700 cows. Pivot-irrigated from the Mayfield Hinds Scheme, supplemented by ground water, the farm has a 54-rotary cowshed and a manager’s house plus other staff accommodation.
13 Comments
I think its fair of PGW to describe that as a benchmark sale. A public auction well attended with a willing buyer and a willing seller and a result dead in line with the NZIER figures seems fair to me. Im not sure what that property would have made at the peak but im assuming that it is well back in the order of around 30% which is about what im hearing down here.
Meanwhile on the other side of the farm PGW shares were sinking like a stone!
They sank after NZ Farming Systems Uruguay, the dairy farm developer it spawned, severed ties with its former manager.
Farming Systems chairman John Parker told shareholders Singaporean commodities company Olam International, which bought 78% of the farm manager last month, changed the terms of the management contract buy-out from Wrightson, opting out of a preferred supplier agreement.
Wrightson will get a $4.6 million payment, and will receive some $20 million of outstanding fees by the end of the year as part of the severance package. Its shares dropped 1.7% to 57 cents. Farming Systems fell 3.2% to 61 cents, extending its slide since Olam completed its 70 cents-a-share takeover offer.
Farming Systems turned down the opportunity to buy advice and consulting services from Wrightson until 2015 and to keep New Zealand's biggest rural services company as preferred supplier until 2019.
"The preferred supplier agreement no longer exists in any formal form, but the management contract will be internalised as envisaged, albeit at a slightly higher cost and any monies due to PGW will be paid before the end of the calendar year," Parker said.
"We envisage agreement of all parties being finalised within the next couple of weeks.
The buy-out of the management contract was to be voted on at today's annual meeting, but the changes, negotiated by Olam last night, meant the parties won't be related anymore and don't require investor approval, Parker said.PGG Wrightson's shares sank after NZ Farming Systems Uruguay, the dairy farm developer it spawned, severed ties with its former manager.
Farming Systems chairman John Parker told shareholders Singaporean commodities company Olam International, which bought 78% of the farm manager last month, changed the terms of the management contract buy-out from Wrightson, opting out of a preferred supplier agreement.
Wrightson will get a $4.6 million payment, and will receive some $20 million of outstanding fees by the end of the year as part of the severance package. Its shares dropped 1.7% to 57 cents. Farming Systems fell 3.2% to 61 cents, extending its slide since Olam completed its 70 cents-a-share takeover offer.
Farming Systems turned down the opportunity to buy advice and consulting services from Wrightson until 2015 and to keep New Zealand's biggest rural services company as preferred supplier until 2019.
"The preferred supplier agreement no longer exists in any formal form, but the management contract will be internalised as envisaged, albeit at a slightly higher cost and any monies due to PGW will be paid before the end of the calendar year," Parker said.
"We envisage agreement of all parties being finalised within the next couple of weeks.
The buy-out of the management contract was to be voted on at today's annual meeting, but the changes, negotiated by Olam last night, meant the parties won't be related anymore and don't require investor approval, Parker said.PGG Wrightson's shares sank after NZ Farming Systems Uruguay, the dairy farm developer it spawned, severed ties with its former manager.
Farming Systems chairman John Parker told shareholders Singaporean commodities company Olam International, which bought 78% of the farm manager last month, changed the terms of the management contract buy-out from Wrightson, opting out of a preferred supplier agreement.
Wrightson will get a $4.6 million payment, and will receive some $20 million of outstanding fees by the end of the year as part of the severance package. Its shares dropped 1.7% to 57 cents. Farming Systems fell 3.2% to 61 cents, extending its slide since Olam completed its 70 cents-a-share takeover offer.
Farming Systems turned down the opportunity to buy advice and consulting services from Wrightson until 2015 and to keep New Zealand's biggest rural services company as preferred supplier until 2019.
"The preferred supplier agreement no longer exists in any formal form, but the management contract will be internalised as envisaged, albeit at a slightly higher cost and any monies due to PGW will be paid before the end of the calendar year," Parker said.
"We envisage agreement of all parties being finalised within the next couple of weeks.
The buy-out of the management contract was to be voted on at today's annual meeting, but the changes, negotiated by Olam last night, meant the parties won't be related anymore and don't require investor approval, Parker said.PGG Wrightson's shares sank after NZ Farming Systems Uruguay, the dairy farm developer it spawned, severed ties with its former manager.
Farming Systems chairman John Parker told shareholders Singaporean commodities company Olam International, which bought 78% of the farm manager last month, changed the terms of the management contract buy-out from Wrightson, opting out of a preferred supplier agreement.
Wrightson will get a $4.6 million payment, and will receive some $20 million of outstanding fees by the end of the year as part of the severance package. Its shares dropped 1.7% to 57 cents. Farming Systems fell 3.2% to 61 cents, extending its slide since Olam completed its 70 cents-a-share takeover offer.
Farming Systems turned down the opportunity to buy advice and consulting services from Wrightson until 2015 and to keep New Zealand's biggest rural services company as preferred supplier until 2019.
"The preferred supplier agreement no longer exists in any formal form, but the management contract will be internalised as envisaged, albeit at a slightly higher cost and any monies due to PGW will be paid before the end of the calendar year," Parker said.
"We envisage agreement of all parties being finalised within the next couple of weeks.
The buy-out of the management contract was to be voted on at today's annual meeting, but the changes, negotiated by Olam last night, meant the parties won't be related anymore and don't require investor approval, Parker said.
You know that the rural side of things are in trouble when the real estate scum are taking to bleating over 1 sale.
The next scary realisation is that Mid Canterbury is the most productive area in the whole country for dairy farming with the ability to generate the largest operational surpluses. It is for this productive value that these farms will retain more of their value.
Watch the bottom fall out of the market on anything that is slightly marginal.
Oh yeah, and rural debt at nigh on $50bn. It has neither the balance sheet or the liquidity to ride this one out without foreign ownership or a significant fall in land value as rates of return trend towards 10%..
As ITYS has pointed our irrigated Mid Canterbury is pretty much the gold standard of rural land so if I were a purcaser I would extrapilate that out to indicate that was the top end of the range.
I think most people would see that as a healthy correction and view it in the context of the large increases in the previous few years. I dont agree with the whole bottom falling out of the market doomsday senario. For that to happen either interest rates would have to lift significantly which at the moment people rolling off fixed terms are going onto significantly lower rates or product prices crash which as we know are at almost historic highs. If either of those things reversed then maybe the doomsdayers will get there "told you so moment" until then I would expect most people will sit tight and sure up their balance sheets unless they are forced to sell which judgeing by the minimal turnover is the current state of play.
I'm not a doomsday person by any stretch of the imagination. I'm just intimately acquainted with the state of the rural balance sheet and know that there are a significant number of businesses that are unable to sure [sic] up their balance sheets or it would take 15 years of high operational surpluses to repair the damage that has been done to them.
The market is going to seem awefully crowded with farms for retrenchment in the next 12 months as more people move towards retirement and others are forced to sell (which is a reality as anyone in mid canty would know givent he recent retrenchment of a farming asset by the director of a fonterra competitor...)
OK ITYS, I,ll bow to your wider"intimate" acquaintence with the rural balance sheet as this suggests you are either a rural accountant/consultant with access to such information. It does surprise me abit as I know from my own situation that it is actually looking not too bad with the prospect of it being pretty good given the best case senario(not budgeted for). Infact as of yesterday I have taken on an employee(jobshare with a nieghbour) for the very first time such is my confidence in my prospects. Given that I have a decent debt loading and am not a top 10% operator I would have expected most cockies to be travelling along not too badly, especially the dairy boys?
Approx 20% of the dairy boys have 80% of the debt SS and I am guessing Canterbury has a disproportinate share. The established family farm dairy farms I believe are doing ok. I don't personally know of any farmers either in my North Island farming circle or our Sth Island farming circle who do have any problems. However to be fair to ITYS even if 15% of dairy farms came on to the market at once it would seem like a flood - especially if they weren't voluntary sales.
Our accountant has said that his clients that are struggling are the ones who recently bought at high prices, are highly leveraged, and refuse to accept a realistic view of property prices. Also some of those struggling still believe that they are entitled to a certain standard of living that is not supported by the farm income.
The Bank Manager was telling us they are looking at farm prices of $30k/ha BUT based on 1000kg/ms. So the farm in this article seems to be priced about right. We personally are hoping to see prices come back to around $20-25/kg. You could make a profit on a non-irrigated dairy farm at those prices.
After more than a decade of farming in the south Island I have come to the conclusion that southern farmers are much more financially canny than their 'live for the bling/ego driven' northern counterparts. It might go someways to explain why you are doing ok. ;-)
Sheepshagger
Here is one for you. Cotton prices surged to a record on friday and were limit up on friday and then limit down following reports of demand from china and a failing crop there.
http://www.agrimoney.com/news/cotton-price-hits-record-as-china-imports-soar--2363.html
Wool is supposedly recovering on the back of demand for cotton
Scottish presbyterian CO, thats the secret! Look after the pennies and...... etc.Also as we discussed during the storm the consistency of the southern climate over time limits the downside years abit as production is reasonably reliable.
Im guessing the banks are more in favour of a managed decline rather than a crash so id be surprised if they allowed the market to be swamped by wholesale forced sales especially while the payout should cashflow most. Just my feel for it.
Andrew in Finland, cheers for the link, very interesting. You may be able to shed some light here as what im really trying to get my head around is what are the implications for our soft commodities after another round of QE. The general theory seems to be that investors are looking to commodities as a hedge against a falling dollar with gold being the obvious example . Will that be a sign that the likes of wool, beef and milk powder will benifit and will that outpace the associated rise in the NZD? Or as Roger Kerr has suggested elsewhere is it a case of "buy the rumour sell the fact"? Im hopeing that because most of our commodities are underpined by actual demand we should be on the right side of the ledger? Your thoughts....
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