The REINZ Dairy Farm Price Index fell 18.6% in the three months to October versus the same period of last year.
The Index adjusts for differences in farm size and location to show the trend across the country, but the number of dairy farms sold and their median price per hectare were also down.
According to the REINZ, 18 dairy farms were sold in the three months to October, compared with 23 in the same period of last year and 37 in the three months to October 2013.
The median sale price per hectare was $31,552 in the three months to October, down $11,747, or 27%, from $43,299 in the three months to October last year.
Other types of farming properties have generally fared better, with the REINZ All Farm Price Index down 5.9% in the three months to October compared to the same period of 2014.
Sales of horticultural properties were strong, with 68 selling in the three months to October at a median price of $171,482 per hectare, compared to 59 sales at a median price of $179,894 per hectare in the same three month period of last year.
And 153 grazing properties were sold at a median price of $19,253 per hectare in the three months to October, compared to 166 at a median price of $14,290 per hectare in the three months to October last year.
There was a sizable increase in sales of arable properties, with 35 selling in the three months to October compared to 29 in the same period last year, while the median sale price per hectare dropped sharply, almost halving from $68,514 in the three months to October last year to $36,110 in the three months to October this year.
REINZ rural spokesman Brian Peacocke said a notable feature of the market had been the increasing number of farms being marketed for sale in the greater Waikato region and speculation surrounding the values of such properties.
"That speculation gained some answers in the latter part of the month with good farms being offered by genuine vendors prepared to meet the market , selling at values fully firm on last season," he said.
The REINZ said other features of the rural market included:
- Insufficient supply of properties to meet demand in Northland, where an easing of prices is anticipated.
- Strong demand in the Waikato with some exceptional prices being achieved for quality grazing/finishing/dairy support properties.
- A slow market in Taranaki affected by a cold, wet spring.
- Extraordinary strength in the Bay of Plenty kiwifruit market.
- Steady market conditions in the lower North Island.
- Mixed interest in dairy farms in Canterbury and inconsistent sales activity.
- A slower market in Southland with early sales indicating a drop in value of around 7%.
To read REINZ's full market report all farm types and all regions, click on the following link:
Farm sales
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24 Comments
I agree, it will take a lot more data to get a clear picture, but dairy farms were being sold for ridiculous prices, and they have to come back to level that makes them affordable and profitable. You can't only farm the good years, so they have to be profitable in bad years as well. Prices have been too high for at least the last 10 years, so they have a long way to catch down to reality.
Meanwhile I see the drystock farmers are now buying land on the assumption that $6kg for beef is a sensible price. One thing I will say about NZ agri-CULTURE, it is consistent when it comes to following the boom-bust model.
Do bank depositors need to react with acute caution given this data follows on from last week's RBNZ warning in respect of falling dairy farm prices?
Dairy debt modeling
The Reserve Bank also included some new modeling of what might happen to bad loans to dairy farmers if land prices fell as much as 40% and the payout rose only to NZ$5/kg by 2018/19.
It estimated its worst case scenario could see 44% of loans becoming non-performing, with those loans held by 25% of farmers. Eventual loss rates under the scenarios ranged from 2% to 14%, which amounted to losses of around 2-18% of bank before-tax profits.
But overall, the bank said it expected banks to take a medium term approach to dealing with loss-making farmers and it expected the banks to put aside realistic provisions.
"Losses for the banking system as a whole are expected to be manageable, even if low milk prices persist for a number of years," it said.
However, the Reserve Bank said it had asked the five biggest dairy lenders (ANZ, ASB, BNZ, Westpac and Rabobank) to undertake stress tests of their dairy portfolios, "providing an institutional level view of potential losses under similar scenarios." The bank said it expected the results to be returned by the end of the year and would be reported on at a later date.
Although non-performing dairy loans were still low at 1%, up from 0.6% a year earlier, the Reserve Bank said "watchlist loans," that provide a leading indicator of non-performing loans, have increased over the last year and are now running at 5.8%.
Better the RBNZ reports back in haste to inform the unsecured bank lender class. Due diligence investigation of such lending practices is needed now rather than later.
What we are seeing is a gradual slowdown in the world economy. It confuses me when they call the dairy downturn cyclical. I have noticed a lot of little things talking to people in our area showing signs of slowing. The problem will come when people realise that lower interest rates and money printing are losing their effectiveness.
Dairy farmers have been sold a pup
Intensive systems have no contingency plans for what is happening now and they are in a fixed mindset, unfortunately these guys are still planting maize silage which is really just an emergency feed to fill the gaps for pasture based system not actually profitable to feed at levels for direct milk production above the pasture system as is the case with Palm Kernal, yet many farmers are still stocked to high and rely on this.
Too much diesel in the milk
My thoughts on reading this just now:
Hmm, roughly $35k per hectare land cost, I wonder what return the dairy farmer gets per hectare...
[Google brings up this page , http://www.smartbusinesscentre.co.nz/2015/08/dairy-by-the-numbers/ ]
Ok, average yield of 1,028kg milk solids/hectare - roughly $4k per hectare at the current payout. Hey that's not too bad >10% yield.
[Reads the next line and sees this]
"$5,073 the farm working costs per hectare (in the 2012/13 season)."
Ohhh, not so good.
[Reads a bit further and sees this]
"$144,000 the projected average annual loss per farm, before debt servicing costs."
Damn, that's a worry...
Total national dairy Farm debt in the 1990s sat at around $20kgms. Today that figure is largely unchanged on a national kgms basis. What has changed significantly are our costs - and not just for land. Established farmers will survive ok.
Current payout for Fonterra is higher than that used in that example. ;-)
90% of farmers will need to take on extra debt to keep going.
I categorically disagree with this comment! Established family farmers are very good at cutting their cloth to fit the economic times. Corporates don't have as many options. 25% of farmers hold the significant portion of farm debt.
You a bit chilly down there CO? Bloody cold in HB, 8 degrees at 10 am. Been the coldest November I can remember.
Sheep and beef is in the same boat, prices are pretty good, it's the costs that are doing the damage and they are still going up although mostly council charges.
Its a warm 23deg in the orchard at Central Aj. Was 12deg there at 9am this morning. I'm in sunny Southland. Been here for 4 days. Had lots of sun but some cold breezes with it. We have got all the barley in, grass going in today. (Grass/barley mix for silage) Fodder beet in. Only had 50% of monthly rainfall down here. Had 3mls rain overnight though the wind has dried that up. Blowing quite a bit today - more than usual ;-)
Farmers more than happy with cow submission rates so far.
Went to presentation By Rabo's Tim Hunt last night. Dairy isn't going to go up too soon. Ireland and Netherlands have produced 60% of the EU increase in milk between them. But they do believe that it is a cycle we are in - a bit longer than usual - and not a fundamental change.
Here's something interesting - rumour is that ASB have a lot of sharemilker jobs available. None are advertised. It's getting around the young farmers via word of mouth. I had a bank approach me to see if our sharemilkers are moving off as they have some very good sharemilkers looking for jobs. Not sure why the banks are taking on this role - do they control the farm cheque book?. Are they forcing owners to sell their herds to reduce debt or forcing sharemilkers off? There have been some sharemilkers already sold up down here this season. We won't rely on consultants to pick our sharemilkers and we sure wouldn't rely on our bankers to do it! :-)
Agree with your last comment. Maybe if we all take a hit to our income for a couple of years Councils will have to stop using us as cash cows?
ASB have their share of highly indebted farmers, it was the banks drive for market share that pushed them over the edge.
Don't know what to do about the councils are there any precedents for councils cutting costs. I haven't heard of any and imagine they will keep on hammering away at us and they do have support from Central government. LGFA has enabled them to continue spending without having to justify the cost to ratepayers.
http://www.stuff.co.nz/business/73056045/new-zealand-local-government-f…
http://www.lgfa.co.nz/sites/lgfa.co.nz/files/LGFA%20Overview%20-%20Nov%…
ASB as ace sharemilker allocater
Its about owning and or controlling the process. Dairy lending, in the same way home lending has (it seems) is an activity banks wish to fully embrace.
They then using a process lens look at all the touch points that influence the loan income and (not by equity ownership but rather process control) look to influence those favouably (to the houses benefit).
As explained by a banker type weight of control of processes trumps practically all else, even people.
Seen this new business venture for the Hawkes Bay;
http://www.nzherald.co.nz/hawkes-bay-today/business/news/article.cfm?c_…
Seems to me to be the sort of differential, high value add we need. And not a cow in sight :-).
Kate, they have purchased some land on the Waipawa river on the west side of Waipawa township. They will be running a cut and carry operation and good luck to them.
The sad thing is I had friends who ran a decent sized goat milk operation supplying Kapiti,every day the passenger bus took a mini tanker of milk south with it.
Fonterra purchased Kapiti, then wanted them to front up with money for shares, if you wanted to be a supplier. They were not in a position to do that so closed the operation down and sold the farm, another Fonterra fail. They ran a very good operation but had a lot of Parisite problems.
My only caution would be the dependence on China, the biggest Ponzi scheme in history, that and the fact all the farmers in the States are talking Goats as being the ' next big thing'.
Kate: These animals are all going to be housed. That suggests intensive farming. Cut and carry suggests a LOT of fertiliser going on. Environmentally this operation may well be no better than and possibly more damaging to the environment than if it was dairy farmed. The company below already has an advantage - it is all pasture based and uses the fact that it's animals 'graze on rolling hills' in it's marketing. If you were a Chinese parent which product would you buy - the sheep milk from sheep grazed outside, cow milk from cows grazed outside or the factory farmed sheep/goat milk?
Added to that the nutritional claims (made on the below website) one has to wonder why parents would buy anything with goats milk in it.
SHEEP MILK v Cow & Goat Milk
Sheep Milk nutritionally out-performs goat and cow’s milk in almost all areas:
44% more Energy than cow’s milk
45% more Protein than cow’s milk
50% more iron than cow or goat’s milk
38% more Calcium
90% more Folic Acid than goat’s milk (similar levels in cow’s milk)
50% more Vitamin B12 than cow’s milk
http://blueriverdairy.co.nz/our-products/milk-powder/
Blue River was a kiwi company, now owned by the Chinese.
Yes, I have no idea about the comparative environmental effects of intensive sheep/goat dairy vs non-intensive cow dairy. Point is, much of the cow milk production is moving towards more intensive farming practices anyway.
My point is mainly that it's good to see an agricultural initiative going in a direction away from high volume, commodity production - in to a more niche product. Whether it will be successful and/or good or bad for the environment, I wouldn't know.
I guess we'd likely all rather everyone grew apples and nuts :-).
With more regional plans coming in to force Kate, and lower payouts for next 12-18mths cow milk production, is already starting to move away from intensive farming practices so I disagree with your point re intensive farming practices. There will always be some who will intensively farm if the regional plans allow it, but it is by no means the way the industry is going. The media like to highlight intensive farms and harp on about dairy and the environment but the reality is that most media commentators simply don't know of the effect of anything other than dairy and have no desire to learn. ;-)
Surely it is only a good direction if it has no negative environmental outcome, niche product or not?
Nuts yes, apples - mmm...heard of organophosphates?? ;-)
There will always be some who will intensively farm if the regional plans allow it,
What we've found around these parts is that even if the Regional Plan does not allow it - "friendly" regulators are letting the law down;
http://m.nzherald.co.nz/wanganui-chronicle/news/article.cfm?c_id=150342…
Surely it is only a good direction if it has no negative environmental outcome, niche product or not?
I think you're a bit on a hiding to nothing if you're trying to argue cow milk production has no negative environmental outcomes - intensive or otherwise.
Kate, Horizons One Plan was one of the first off the block. If Council find they are needing to allow activity outside the Plan Rules then it suggests that the original rule is flawed.
I have the situation where one company that does nutrient budgets counts wetlands in the equations as a mitigation factor when using Overseer, and another does not. The difference to our farm leach rates is around 11kg/N. So which is correct? In Southland the development of wetlands is being promoted as a mitigation option to reduce leaching of N. It either is, or it isn't, a mitigation. If it is then it has to be accounted for in the nutrient budget. So many things can change the nutrient leach rates - more rainfall = more leaching even in a farm management status quo scenario.
Yes, I could have worded my comment re environmental outcome better. A change in direction just for the sake of it, does not make it good. Your comment 'not a cow in sight' implies that you consider dairy farming worse than this proposed business. That is your emotive 'anti dairy' view coming to the fore. A change in direction if it results in worse environmental outcomes than existing options, does not make it good. Everyone has a negative impact on the environment, dairy included. ;-)
Have you read this: http://www.stuff.co.nz/business/farming/opinion/73669787/muddying-the-w…
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