Just 27 dairy farms were sold in New Zealand during November, down from 37 for the same month in 2014, 40 in 2013, and 22 in 2012, according to figures from the Real Estate Institute of New Zealand. The REINZ Dairy Farm Price Index, which adjusts for farm size and location, fell 23 percent from November 2014.
Global dairy prices have tumbled this year amid increased supply and weak demand. That’s flowing through to farmers, with Fonterra Cooperative Group expected to pay its suppliers $4.60 per kilogram of milk solids this season, below DairyNZ’s estimate of the $5.40/kgMS needed for the average farmer to break even. In the dairy land market, that’s causing buyers to be more cautious.
“We are seeing a cautionary reaction within the marketplace to the current dairy scenario,” said REINZ’s rural spokesman Brain Peacocke. “The reality is that you are just facing up to reduced cash flow in the current season so that impacts on spending decisions. There are fewer buyers now than there were earlier in the season and there have been less properties available.
“November was quieter than one would have expected in volume terms, and the less volume there is, the more reaction there is going to be on median price because you don’t have the spread of properties to average things out.”
Still, Peacocke said good dairy farms had experienced only a “slight easing” in prices, compared with “very little demand” for lesser quality properties.
Buyers evaluate the location, quality of improvements, land contour and compliance measures when assessing the value of a property, he said.
“People buying those very good farms take a medium to longer view and therefore maybe look at this season as one of the low points in the expectation that in due course things will improve,” he said. “If it’s quite mixed and a fair way from service centres then at the moment there may well be no interest at all.”
Prospective buyers were cautious, even in a low interest rate environment, he said.
“Interest rates are at pretty reasonable levels for borrowing – having said that we are around the country finding some instances of people not prepared to borrow even though the interest rates are at very conducive levels and also that the bank are happy to back them, so there is a bit of a judgement call made by some purchasers just to be a wee bit cautious and sit tight just a little bit for now.”
Lower turnover of properties could spark a chain reaction as people are reluctant to put a property on the market unless they can see another property to step into, he said.
“What we are seeing out there is a very resilient industry with resilient players and people in the main are just being prudent from a business perspective with a longer term view of optimism.”
