Dairy farm prices have taken a major hit, with the Real Estate Institute of New Zealand Dairy Farm Price Index dropping more than 10% in the last month and over 22% in the last year.
The Index adjusts for the differences that farms' size and location have on their selling prices, and was down 10.8% in the three months to November compared to the three months to October and down 22.5% compared to the three months to November last year.
There was also a 39% decline in the number of dairy farm sales, with 42 selling in the three months to November compared to 69 sales in the same period last year, the REINZ said.
The Reserve Bank said this week about 80% of dairy farmers are likely to have negative cash flow during the current 2015-16 dairy season, up from 49% in the 2014-15 season. And Statistics NZ said there were a total of 6.4 million dairy cattle at the end of June this year, down 300,000 year-on-year against a backdrop of falling international prices and lower milk solid payouts. Fonterra recently reiterated its $4.60 per kgMS milk price forecast for the current dairy season, although economists note global dairy prices need to improve for this price to be achieved.
The overall rural property property market fared slightly better, with the REINZ All Farm Price Index down 5.9% in the three months to November compared to the same period last year, but up 4.9% compared to the three months to October.
Overall there were 416 farms of all types sold in the three months to November, compared to 414 compared to the same period last year.
"Variability in weather conditions around the country has been a feature this spring, with many areas experiencing more wind and cooler conditions than normal, yet other regions such as the mid to northern areas of the South Island being impacted by continuing dry conditions and it would seem, the early onset of El Nino," REINZ rural spokesman Brian Peacocke said.
"The dairy sector reflects such variability with considerably fewer farms sold in November 2015 than in the same period of 2014 and 2013."
Around the country the market was described as "fickle" in Northland, with more sales activity on grazing blocks but less first farm enquiry and evidence of buyers pulling back on prices.
In the Waikato there was strong sales activity in the eastern districts although buyers had clearly set limits on prices.
In Taranaki the market was difficult for lesser quality farms, in Manawatu/Whanganui there were fewer buyers and a reluctance by established operators to borrow.
In Nelson/Marlborough there was continuing interest in viticulture properties and the mood was confident.
The market was easing in Canterbury, with drought conditions providing a disincentive to sell although there was good demand for "summer-safe" properties.
There was good demand for sheep and beef properties in Otago but buyers were cautious on price and some irrigation schemes were likely to come under pressure due to lack of rain.
In Southland the market remained strong but with stronger demand for sheep and beef properties rather than dairying.
The lifestyle block market remains buoyant with 2200 lifestyle properties selling in the three months to November, up 35% compared to the same period last year.
See below for more detailed analysis of rural sales:
These details are drawn from the Real Estate Institute monthly reports for November 2015, and focus only on farm sales - excluding lifestyle blocks.
The market recorded 173 sales, which is +28% above the same month last year and +23% above the average November over the past four years.
The median price per hectare was $28,671 in November 2015, +4% higher than for October, but -4% below November 2014.
Lower average prices applied across across all farm types except grazing units.
November 2015 sales included:
15 arable farms,
27 dairy farms,
37 finishing units,
62 grazing properties,
25 horticultural,
7 farms of other types
The number of sales is presented here, without the average price, because average prices bounce around dramatically depending on the size and type of business unit being sold. However, the following table sets out the median prices per hectare over the past three months, as reported by REINZ.
| $/ha - November 2015 | Arable | Dairy | Finishing | Forestry | Grazing | Hort | Special |
| New Zealand | 31,102 | 35,102 | 24,409 | 8,733 | 16,949 | 176,783 | 26,020 |
| Northland | 11,947 | 12,241 | 9,537 | 177,165 | |||
| Auckland | 553,023 | 30,127 | 35,244 | 30,394 | 23,091 | 271,167 | 990,632 |
| Waikato | 145,604 | 50,602 | 56,310 | 7,593 | 31,037 | 613,383 | 157,800 |
| Bay of Plenty | 337,571 | 35,003 | 28,176 | 20,445 | 33,333 | 289,668 | |
| Gisborne | 24,905 | 9,501 | 97,656 | ||||
| Hawkes Bay | 20,512 | 12,924 | 11,405 | 106,870 | |||
| Taranaki | 95,870 | 44,839 | 49,988 | 1,266 | 52,174 | ||
| Manawatu/Whanganui | 19,706 | 21,680 | 30,963 | 5,153 | 12,690 | 4,279 | |
| Wellington | 25,362 | 16,280 | 4,655 | 8,065 | 295,498 | ||
| Nelson | 10,532 | 28,299 | 8,733 | 12,628 | 120,000 | ||
| West Coast | 7,885 | 1,694 | 6,691 | ||||
| Canterbury | 30,464 | 55,283 | 34,174 | 20,009 | 19,195 | 44,360 | |
| Otago | 8,790 | 9,624 | 8,750 | 13,118 | 211,595 | 4,852 | |
| Southland | 4,841 | 36,105 | 22,427 | 4,858 | 22,932 |
You can find current farms for sale and listed on the market here.
Farm sales
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27 Comments
Screwed
All the marginal land in dairy will be back %50, that includes all the pines to dairy country that Landcorp are developing.
That includes the irrigated high cost of production land in Canterbury, HB etc.
"Cutting through the Cheese of Global Dairy Markets - 2016" - Chris Walkland
https://www.youtube.com/watch?v=qTk0CHdXHV0
here is another one for you
https://www.youtube.com/watch?v=9H8YYsMawdI
"The lifestyle block market remains buoyant with 2200 lifestyle properties".
But of course - the Life Sentence Block is the natural outlet to the zoned-out urban Smart Cities.....
Plus, and of course, to Corporate Dairy, lower farm prices are a good time to consider acquiring another farm or three.....and typically, out of cash reserves. Blood in the Streets, or Milk in the Gutters?
Some in Central Otago are looking to get some resources to enable sensible decisions in the area of rural subdivision.
http://digital.thenews.co.nz/olive/ode/co_daily/
and from the largest farm investor?
The key question for vendors and buyers of dairy-aligned land is that of a sustainable level of valuation. We think this is somewhere between 10-15% below what transpired in 2014/15. As we have said before, it was always going to be difficult for dairy-aligned land prices to maintain the heady highs set through 2014/15 with such a significant downturn in incomes.
The risk in the short term is that the market overshoots due to continued poor international prices, cash-flow strains, and a morale-sapping dry summer, and as a result, a stand-off develops between vendors and buyers. This could occur, but seems unlikely to us for several reasons:
1. Confidence in the long-term outlook remains, influencing behaviours.
2. Credit is still available for those with a strong enough track record and balance sheet.
3. There are likely a lot of buyers who would be interested if a correction of say 10-15% occurred.
4. Recent transactions of smaller parcels of land at still-high prices by adjoining neighbours
demonstrate there is a pool of buyers that are still looking at options to strengthen/grow their
businesses.
5. Some other capital inputs (such as cows) are cheaper than they have been for some time.
6. Vendors will simply sit tight, as demonstrated by a lower number of large-scale operations on the market at present.
So at this stage it seems unlikely there will be a short, sharp adjustment in dairy-aligned land
prices. It seems more likely that quality properties hold their ground, so to speak, or perhaps face a
slight discount this summer/autumn period. Less desirable properties will face more pressure as is
always the case in any market, and perhaps be discounted by up to 10%.
page 18 and onward
http://www.anz.co.nz/resources/1/b/1b383fe2-5668-470a-86f7-95f782880f49…
table wise we think it No.2 then daylight to the others.
Im not as optimistic as they are on beef, mind you I also didn't share there euphoria for the dairy industry.
http://www.forbes.com/sites/thomaslandstreet/2015/10/05/cattle-futures-…
However, the USDA also flagged that this rise in beef supplies - also boosted by increased slaughter of dairy cows, amid a milk market slowdown, and by soaring Australian imports – was meeting limited demand from packers, suffering their own profitability pressures.
While US beef prices to consumers remain historically high, at $6.04 per pound in October, up $0.11 year on year, the profits from the elevated values are being captured by retailers, rather than wholesalers.
The ratio of retail beef prices to wholesale values reached 2.87, as of October, up from 2.42 a year before, and an average of 2.61 on Rabobank calculations.
"While cattle and wholesale beef prices have suffered a 25-30% decline, retail prices are unchanged creating huge margin opportunities for grocers," the bank said in a report this week.
Pressure on cattle prices'
Indeed, "beef processors are limiting weekly kills in an effort to support the cutout," the wholesale price of a processed carcass, the USDA said.
"The strategy of reducing kills will lead to backed-up front-end supplies [of cattle], causing additional downward pressure on cattle prices heading into 2016."
The squeeze also comes in the face of a 34% surge to 512m pounds in beef in US cold stores as of the end of October, led by "strikingly higher" volumes of boneless beef, at a record high of 472m pounds.
"The combination of burdensome stocks and slowing demand for processing beef is expected continue to pressure domestic [wholesale] lean beef prices lower."
'Fell out of bed'
The comments came even as wholesale beef values fell to their lowest in nearly two years.
http://www.agrimoney.com/news/us-cattle-price-outlook-weak-as-grocers-c…
Aj, here is detail/a view of whats going on in China as at 6 weeks ago-ish.
go to page 87 onward for (wordy) comment and analysis on industry and market with metrics from a China insider..
http://www.zhongdidairy.hk/cms/html/client/bjsinofarm/attachment/201511…
http://www.zhongdidairy.hk/html/investor.php
- they are not picking a return to thundering volume wmp import buying..
interesting, meanwhile back in la la land the debt is becoming a problem.
In considering the debt position, one should start by asking a very basic question: of total global debt, which currently exceeds $200 trillion equivalent, how much has been taken out without any intention of repaying it? We know that nearly all governments never intend to repay debt, instead looking to roll it, add to it, and inflate it away. Household debt continues to build in aggregate, and we know that the easiest way to make money is to take out a mortgage and buy a home. And how many company treasurers think about actually reducing debt, as opposed to refinancing it? One could go on, but the point is that monetary inflation has turned us all into habitual borrowers and debt continues to compound.
Complacency and markets are a dangerous combination. So far, there have been some rumblings about the position of lower quality borrowers with junk status. But even here, no one worries much, dismissing it as a liquidity problem. Note the evasion: the problem is not regarded to be the borrowers so much as market liquidity. Well, there is now a real issue that challenges this complacency, and that is commodity-related debt.
http://www.financeandeconomics.org/commodity-losses/
OTOH on a global basis the beef population is not keeping up with population or purchasing power growth. Though it doesn't take in to account beef productivity growth.
"The cattle inventory in the world in 2015 is 964.64 million head. This is down more than 29 million head from 2014. The cattle inventory was over 1 billion head from 1995 until 2009."
http://beef2live.com/story-world-cattle-inventory-1960-2014-0-111523
The milk isn’t slowing in Europe either. Preliminary data from Eurostat shows October milk collections up 4.6% from last year, excluding Greece, Croatia, Italy and Austria, which have yet to report data. Growth in the two largest dairy nations in the Eurozone – Germany and France – is picking up pace. In October German output rose 3.3% from a year ago, and production in France was
up 2.9%. According to Daily Dairy Report, “European dairy producers have
decades of pent up equity and an appetite for growth. Clearly they have not been deterred by the low global milk price.” Dairy producers in the Netherlands,
Ireland, and Belgium have been particularly enthusiastic about post-quota
growth. Production in those nations rose 11.4%, 26.7% and 9
http://www.milkproducerscouncil.org/updates/121815.pdf
Except for the simple fact people are still buying oil increasing volumes...
https://www.iea.org/media/omrreports/2015/1215/1215image3.png
Oil demand growth still cranking too. Contrary to doom merchant belief.
https://www.iea.org/media/omrreports/2015/1215/1215image3.png
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