Farm price blues stay as investors still wary
Farming investment will be subdued for another three to five years, says a leading rural banker. Charlie Graham, managing director of rural banking for the ANZ-National group, which holds $19 billion of farmers’ debt, said although farm values had slipped 20-25 per cent in the past two years they may still have some way to go.
‘‘A lot of farmers with very strong balance sheets are looking around but they are not prepared to pay the prices on offer,’’ he told The Dominion Post.
The Real Estate Institute has reported that only eight dairy farms had sold nationwide in the past three months but said interest was perking up on good news of rising international prices. However, the institute said buyers were being price sensitive and warned sellers expecting to realise the values of two and three years ago would be disappointed.
Mr Graham rejected the view that banks had contributed to soaring dairy farm values by encouraging lending. ‘‘We do a credit assessment on long-run economic fundamentals. When the dairy payout was at the $7.90 level we were never budgeting on that, we were in the mid fives, which we thought was realistic for the long term.
‘‘For a variety of reasons some of the numbers haven’t stacked up but I don’t think you can point the finger at anyone in particular. An asset bubble built up and land prices got out of kilter with the economic fundamentals.’’
This erosion of land values had put some farmers in a vulnerable position but most farmers’ balance sheets were still strong.
‘‘You have a small proportion of farmers who have too much debt but they’re working at the performance of their farms.’’
However, a smaller number had no future and they were going to have to sell up.
Some dairy farmers were getting a good return on assets, as much as 7-8 per cent and they were using that to either reduce debt or build up a ‘‘war chest’’ for when land values became more realistic.
Of sheep and beef farmers, 20 per cent were making returns of 6-7 per cent.
‘‘Unfortunately, 80 per cent aren’t making too much at all.’’
LONG DROUGHT: Rural banking leader Charlie Graham thinks any recovery in farm prices will be slow.