But doesn’t want to break up their marriages. It’s their inclusion of the prices they’re willing to pay for land into working out the potential returns for any move they’re thinking of making into intensification he’s talking about.
“Land historically has been a good investment,” he told a DairyNZ workshop on investing in off-paddock facilities in Morrinsville last week.
“But has anyone got any predictions for the future?”
The subject came up throughout presentations which looked at how United States farmers on the west coast were able to establish and run large dairying enterprises cheaply because of low land prices, along with costs less than those New Zealand farmers have to deal with in the areas of stock feed and labour.
A comparison was made of different feed costs with US farmers considerably better off with maize silage prices at 16-25c/kg drymatter (DM) compared with 35-40c/kg DM in this country, lucerne hay or grass silage coming in at 30-40c/kg DM, compared with 30-50c/kg DM here and grain, where of course the US has the biggest advantage, costing 24-38c/kg DM compared with NZ’s 40-55c/kg DM cost.
Labour costs were put at $9-12/hour – “If they’re less they’re probably not legal,” Kim Mashlan from DairyNZ research and development said – while in NZ they could be from $13 to $30. And housing infrastructure was put at less than half the NZ cost, ranging from $1100 to $1500 compared with $2500-$3500.
But it was the cost of pasture, which was put at 9c/kg DM, which got the talk of divorce going. Mashlan said this contributed to NZ’s onfarm uniqueness with grazed pasture still being the cheapest feed source internationally.
“If you exclude the land cost it comes to us debt-free through sunshine and water,” she said.
But adding land in at an average cost of $40,000-$50,000/ha and using a realistic 7-8% interest rate for debt servicing, she lifted that figure to nearer 14c/kg DM.
Taylor had no argument with that, suggesting many farmers, because of the high price they paid for land, were only receiving about a 2-3% return on their assets. An ill thought-out move to intensification could see them push their business well and truly into the red.
So what are the industry, and outsiders, to make of an admittedly prime piece of Waikato dairying land selling for close to $100,000/ha in the very same week?
The 60ha farm sold for $5.8 million, which equates to $97,000/ha including dairy company shares. It’s believed to be a record price for a NZ dairy farm with the 40-50 people attending its auction showing the level of interest it attracted both locally and further afield.
It does have everything going for it, being close to the Tatua Dairy Co-operative with shares in that high-performing company included in the sale. But even once the value of the shares was deducted the land price still equated to about $80,000/ha for the land and buildings. It produced 85,000kg milksolids last year, and is expected to improve on that this season, from a herd of 200 Jersey cows.
Perhaps unsurprisingly, it was bought by a local farmer.
The real estate company involved in the sale was quick to say the price could well prompt other farmers to put their properties on the market and there’s certainly no shortage of offerings out there at the moment.
But cutting across the supposed rural-urban divide farmers can be seen as facing exactly the same dilemma as Auckland property owners, who last week received their new property valuations. Many can’t believe their property’s value has doubled, tripled or even quadrupled in the relatively short time they’ve been the owner. Some want to sell to free up money for other future plans, some want to increase mortgages to perhaps buy the boat they’re always dreamed of while others, like farmers, are turning their mind to increasing their property’s value even further buy adding a second or third bathroom or maybe a swimming pool.
In both cases caution is called for, a theme running throughout the DairyNZ workshop. Farmers were reminded again and again to do their homework, seek plenty of advice and most importantly go into the final project they decide on with their eyes wide open.
Maybe the very best decision, as with Auckland homeowners is, at the end of it all, to choose to do nothing?
If your house or your farming operation is perfectly suitable for you and your goals why change it? There are plenty of examples of people who followed trends and came a cropper.
And as Taylor emphasised, every farm is different. An analysis of the same cow shelter built on your farm or your neighbour’s might deliver a totally different outcome.
