There has been a sharp drop in the REINZ's Dairy Farm Price Index, which was down 9.1% in the three months to June compared to the three months to May.
That means it is now down 18.1% compared to the same period last year.
The median sales price per hectare for dairy farms was $32,615 in the three months to June, compared to $33,507 in the three months to May and $35,531 in the three months to June last year.
The Index adjusts for differences in farm size and location, while the median price per hectare does not.
The number of dairy farm sales has also declined significantly, with 46 sales in the three months to June compared to 60 in the three months to May and 64 in the three months to June last year.
However, sales of other types of farming properties have held up reasonably well, with 472 farms of all types selling the three months to June compared to 489 in the three months to May and 479 in the three months to June last year.
The REINZ All Farm Price Index was down 4.3% compared to the same period last year.
"Sales volumes for the three months ending June 2016 reflect a reasonably stable rural market with finishing, grazing, arable and horticultural categories maintaining the status quo," REINZ rural spokesman Brian Peacocke said.
"Dairy farm volumes, however, have eased 23% from the previous period."
Grazing properties were the most popular, accounting for 36% of sales in the three months to June, followed by finishing properties 23%, horticulture properties 16% and dairy properties 10%.
The lifestyle block market remains buoyant, with 2480 lifestyle properties selling in the three months to June which was down slightly from the 2518 sold in the three months to May but still up 19% compared to the three months to June last year.
The median price of lifestyle properties has risen by $30,000 in the last month and is now at a record high of $580,000.
In the year to June, 8967 lifestyle properties have been sold with a record collective value of $6.67 billion.
"The lifestyle market is very similar to the residential market with strong demand across the country with the greatest limitation being the availability of properties for sale," Peacocke said.
"Indications form around the country suggest the current robust market is likely to continue for some months yet."
Farm sales
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10 Comments
There has been a sharp drop in the REINZ's Dairy Farm Price Index, which was down 9.1% in the three months to June compared to the three months to May.
That means it is now down 18.1% compared to the same period last year.
Are banks' capital risk weightings fit for purpose in respect of the outstanding debt collateralised by this property type?
Do the TPTB expect to witness the state pension fund further underwriting the risks ahead of depositors?
I am in the twilight years of farming as is Mike Horgan. If someone came and offered me $42,000/ha for my farm I would likely sell it - and I am not under any bank pressure to do so. I believe we have a way to go yet with low dairy prices and at the price Mike got, it would be too good to turn down.
Is there a premium for larger scale farms which don't rely on irrigation?
The REINZ report states increasing enquiry for 1,000 – 3,000 cow units in the South Island where the cost of water is now consistently being factored into decision making.
https://www.reinz.co.nz/Media/Default/Statistic%20Documents/Press%20Rel…
Interesting. One must assume that there are now a large number of dairy farms that are potentially insolvent. If prices continue as they are one must assume that foreclosures and mortgagee sales can not be far aay for large numbers of dairy farms. The banks are in a difficult place as mortgagee sales are likely to lead to rapid downward adjustment in dairy farm prices and resultant large jumps ion bad debts.
Scare stuff given the size of the dairy sector.
It appears that Fonterra will have to announce a payout cut soon if prices do not improve strongly, and I think that will be the tipping point that will send some farms over the edge.
In the Waikato where I am, bank managers are saying their clients have brought their average costs down to $4.65 so they are currently feeling pretty optimistic about this season, but I'm sure that will change.
Depending on the next couple of auctions, I think the next payout announcement will be in the $3.65-3.85 range, and it will be a huge blow to farmers and banks who have been working hard to trim costs to still be making a loss of perhaps up to $1/kgms.
I would be interested to see what average costs are in the South Island now, I expect they are higher and problems will present themselves in Southland and Canterbury first.
Land prices in Southland for good farms have held up much better than I would have thought. The grass growth and ability to do good production post Dec is what attracts corporates/syndicate/offshore buyers.
Farmers I speak to are working on $4-$4.20 and all grass farmers are managing on less. It was a very good Autumn for Southland last season which enabled extra feed to be conserved. Many graziers reduced their prices as there has been a destocking that has enabled many dairy farmers not to be reliant on outside grazing this winter. Also Southland region had a larger % uptake of Fonterra interest free loans than other regions.
I agree that the Fonterra payout is looking somewhat shaky. Their forex hedging is always the big unknown that has the ability to make quite a difference - either way.
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing. Chuck Price, Citigroup”
https://www.globaldairytrade.info/ Auction this evening.
Anyone who has ever tried to sell a house in a down market will know how hard it is, I imagine it would be ten times harder to try to sell a Dairy Farm business then a residential house.
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