Friday, March 29, 2024

How much land can your cows buy?

Avatar photo
The affordability of farm ownership for sharemilkers has taken a turn for the better and there might be elements of a buyers’ market, Federated Farmers sharemilkers chairman Richard McIntyre says.
Reading Time: 2 minutes

Figures from DairyNZ on the 2017-18 season, as graphed by James Allen of AgFirst Waikato, show the number of cows needed to buy a hectare of dairy land is just over 20.

That has improved from 23 cows the previous season.

For the Fonterra share requirement an intending farm buyer has to add the value of three more cows at the market price of $1600/cow.

However, Fonterra does have contract supply and deferred share purchase schemes.

The DairyNZ economics group used $38,000/ha or $40/kg milksolids production as the land value though the latest Real Estate Institute sale figures showed a drop of 18%, based on prices paid for 14 dairy farms sold nationwide during the September quarter.

Among other economic estimates for the past season was an average herd size for higher-order sharemilkers of 362 cows in milk producing 137,000kg MS.

The 50:50 sharemilkers had a good season for revenue with milk income at $3.22/kg and total revenue of $3.65, versus a break-even estimate of $2.52.

Cash operating surplus at $1.47/kg was 40c higher than the 2016-17 season and farm working expenses were $2.18, up 8c. 

From those numbers average operating profit was estimated at $880/ha but the upper quartile would have been $500-$600 more.

According to DairyNZ surveys, higher-order sharemilkers have average assets (mainly cows) of $1 million and equity about $500,000.

McIntyre welcomed the favourable key numbers for sharemilkers, who are now totally immersed in peak milk flows with the prospect of a third $3-plus revenue season forecast by the dairy companies.

“All those numbers are good at present, especially for those sharemilkers who went through two $2 seasons recently.

“But the affordability of dairy farms, to enable sharemilkers to take the huge step to farm ownership, as shown by the graph, has been actually more dependent on cow values.”

He pointed out that when the affordability index of cows required to buy land and shares was most favourable, in 2008 and 2012-14, cow prices were $2000-$2500.

“Those high values were never going to be sustainable so the present boost to affordability has been a result of the lower share prices and potentially an easing in land values.”

McIntrye observed a stand-off in the farmland market with a large number of vendors, some of whom really need to sell, but with price expectations above what a smaller number of buyers is prepared to pay.

“There is quite a bit of hesitancy out there because of the political landscape, uncertainty over the Horizons, Waikato and Southland regional plans and central government wanting to dictate nutrient management.

“That casts doubts over the productive capability of land in the future.

“As to whether this is a good time for sharemilkers to buy land, I would say there are always opportunities out there.”

The years in which cows were worth more than $2000 were when the NZ dairy industry was expanding strongly, he said.

“If we have reached peak cow and the national dairy herd can easily reproduce itself every year there won’t be the same demand for cows that caused the spikes in the past.

“So, the affordability of farm ownership for sharemilkers is going to be more dependent on land values in the future.

“Better quality cows will be traded and the poorer quality ones will find their home at the freezing works.”

He thought the slaughter of cows from Mycoplasma bovis infected farms is not enough to move cow values, just facilitate the reprieve of some slightly lower-quality cows.

Total
0
Shares
People are also reading