Slump in NZ’s dairy farm prices
Analysts warn environmental and foreign concerns are starting to bite as sector faces long-term challenges
Environmental rules and tighter restrictions on foreign ownership are denting dairy farm prices which have fallen more than 18 per cent. The Real Estate Institute of NZ said said the median price per hectare for dairy farms have dropped by 18.3 per cent over the last 12 months. The median size was 178ha.
REINZ’s dairy farm index, which adjusts for differences in farm size and location, dropped by 15 per cent in September compared with a year earlier. Across all farm types, the median price for the three months to September was $25,447, down 7 per cent on the same period a year, but REINZ’s all-farm index gained 4.0 per cent over same comparative periods.
REINZ said the early spring farm market for all farms was subdued, with 21 fewer farm sales than for the three months to September last year.
The institute’s rural spokesman Brian Peacocke said there had been a significant fall in the number of farm sales over the three months, and that they were down by 35 per cent compared with two years ago.
Economic issues beyond the farm gate “both political and financial”, continue to impact with the positives being offset by the negatives, he said.
Colliers International, in its Canterbury Dairy Market Overview, said it expected dairy farm prices in the province, which is responsible for 21 per cent of the country’s milk production, to decline this season.
“Market sentiment appears subdued, due to the limited liquidity, the threat of Mycoplasma bovis, the removal of international purchasers, the risk of further environmental regulations and the performance of Fonterra,” Colliers said.
Colliers’ associate director Greg Petersen said farm prices were going backwards. “There is not the same competition out there between purchasers for prices to strengthen,” he told the Herald.
“Looking further out — there are more clouds out there than we would have anticipated,” he said.
Con Williams, head of investment research at rural syndication firm MyFarm Investments, said dairy farm prices were on a “slow burn” lower.
“There are quite a number of properties for sale and they are probably not shifting that quickly,” he said. “The reduction in foreign investment is quite significant, particularly for large-scale operations.
“The combination of that, together with tighter bank credit, is making it a challenge to sell some of those large scale operations,” he said.
Williams expected dairy farm prices to “trundle along” as long as the milk price stays above $6.00/kg.
Dairy farm prices peaked in 2014-15 around the time Fonterra’s farmgate milk price reached a record high of $8.40 a kg. The farmgate milk price for 2018/19 is $6.25 to $6.50/kg, down from last season’s price of $6.69, but ahead of Dairy NZ’s estimate of break even of $5.40 to $5.50.
Late last year the Government directed the Overseas Investment Office to raise the bar in overseas applications to buy sensitive New Zealand land. Farmers also face tighter rules regarding nitrate runoff into the nation’s waterways.
The Reserve Bank, in its latest financial stability report in May, said the dairy farming sector remained highly indebted and vulnerable to a future downturn in dairy prices.