Land sales enquiries after commodity rise
Export commodity prices are sparkling but the outlook for the rural economy this year is ‘‘muddly’’, with banks keeping a stranglehold on farm lending and cashflows still tight, say sector specialists.
Global food prices rose by 25 per cent last year and in Fonterra’s first global online auction for the new year average dairy prices jumped 7 per cent. But it would be 2012 before there was a rebalancing of overheated pre-recession land asset values and income, they said.
ANZ National Bank chief economist Cameron Bagrie said farm balance sheets looked ‘‘a bit shoddy’’ despite high commodity prices which generated stronger incomes.
‘‘Things will come together in 2012 but 2011 is going to be a bit of a muddly year,’’ Mr Bagrie said.
Farmers would continue to concentrate on reducing debt. The outlook for 2011 was better than for last year but the sector was ‘‘in a halfway house’’, Mr Bagrie said. Next year farmers would have repaired their balance sheets and commodity prices were expected to still be strong, he said.
Market experts expected only a slight improvement in farm sale activity.
PGG Wrightson, the country’s biggest rural real estate company, predicted more energy in the $10million-plus farm market with farmers and other investors with cash teaming up to buy farms that would be operated like corporates, with shareholders and contracted management. The company’s real estate manager Stuart Cooper said inquiry at the market’s top end increased last month.
Nationally there were only five big farm sales last year compared with 60 in 2008.
Bank of New Zealand chief economist Tony Alexander said an indication of new economic life in the sector was a strong increase in tractor registrations last month.
He believed more people, including syndicates, with capital and only some debt would enter the market this year.
But Waikato accountant Nigel McWilliam, a dairy specialist with Diprose Miller, said banks were responsible for the real estate market squeeze.
‘‘Bank criteria for lending are making it so difficult to get deals across the line. We have farmers looking to borrow and a number [of clients] looking to sell, and the banks are very involved with sale and purchase agreements, walking the property with the purchaser and then pouring cold water on the deal,’’ he said. This was a far step from pre-recession days when banks lent freely, including against land value appreciation, Mr McWilliam said.
ASB rural economist James Shortall said dairy and meat returns were generally strong but farmers’ cost structures were still high because of increases in inputs like fertiliser. Important farming regions were struggling with drought and farmers were very cautious about spending after ‘‘a real shakeup’’ over cashflow deficits.