Dairy Report: China, the US and the EU may be pushing on, developing their own dairy industries, but prime New Zealand dairy farms are selling for increasingly higher prices

By Guy Trafford

With the focus so much on the issues around the Governments decision to back the eradication option with MPB it is easy to forget that farming still has to continue, and that world trade carries on.

Coming out of China, Premier Li Keqiang demanded that quality and safety should be stressed to boost the dairy industry. Speaking at the State Executive meeting he stated the aim was within three years to significantly improve the quality and reputation of domestic infant formula.

The meeting decided to adopt three measures to boost the dairy industry: First, to introduce cows of fine breeds to build national breeding farms; to grow more fodder grass; to develop standardised scale breeding and build bases of high-quality sources of raw milk.

Second, to enhance quality supervision and increase national standards for raw milk and sterilised milk; to establish a quality tracking system for the whole production process.

Third, to provide support for finance and insurance, as well as land for raising dairy stock.

So, given the level these edicts have come from, further growth is going to be seen within China in their aim to become more self-sustainable.

From the US the news is that domestic returns for dairy are such as to barely meet the break-even point. However, where they are positive is in exports and producers see rewards off shore in developing countries who are able to afford to purchase milk products on the back of rising oil prices. One of the biggest influences on profitability to dairy farmers in the US is the cost of corn and the season ahead is not looking promising in that regard with soya bean planting ahead of corn for the first time since 1983 and due to the low returns coming off corn. Given the risk still alive with the potential trade issues with China and soya in the forefront of that this news is perhaps a little surprising.

A study from the US concerning where milks biggest substitute competition is coming from got a result that is perhaps surprising. Bottled water is what consumers of fresh milk are moving to. Primarily as a breakfast or on the go drink. Since the 1970’s milk consumption per head of capita in the US has dropped by 45 litres and in the last 10 years bottled water has gone (in total) from 212 billion litres to 391 billion litres. Perhaps our dairy companies are missing a trick given our access to water.

For the EU milk production for the first three months of 2018 are approximately 2.3% ahead of the same time last year although the graph lines are drawing closer together. Given the very bullish outlook promoted by Fonterra and that the other major producers are certainly not backing off from exports or productions the $7.00 forecast has raised some eyebrows.

On the local front, a 92.5 hectare dairy farm on the outskirts of Cambridge sold this month at auction for $11.1 mln, which equates to just short of $120,000 per hectare, a record for a Waikato dairy farm. Sold by PGG Wrightson Real Estate the farm has been in the same family for 120 years. Previously the highest price paid on land and buildings for a Waikato dairy farm was a May 2016 transaction, when a 107 hectare Clevedon property changed hands, also for $11.1 million. That equates to around $104,000 per hectare, making this sale a clear record for a Waikato dairy farm.

Comments from the rural real estate offices is that MBP and the tighter rules regarding Overseas Investment Office (OIO) have slowed down sales. However, this sale shows that in the right place there is still plenty of demand.