Friday, March 29, 2024

Outlook ‘steady as she goes’

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A robust earnings outlook is up against valuation issues and increasing regulation in the rural property market, ANZ Bank rural economist Con Williams says.
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The market typically worked on a price-to-earnings ratio for the year ahead and the expected higher cashflows in a range of farming sectors implied upward pressure on prices.

However, interest rates had bottomed, valuations were already high and the dairy expansion had matured, he said.

Add in election-related regulatory uncertainty around the Emissions Trading Scheme, a range of tax options, overseas investment rules and migrant labour and he thought it all signalled “steady as she goes”.

Sales turnover had dropped in recent months though land values remained robust. The lower turnover had been off healthy levels and the wet weather and election caution also had an influence.

Williams expected a slower start to the traditionally busy spring farm sale period. 

Turnover had dropped below the 10-year average with fewer sales in dairying, grazing, arable, horticulture and lifestyle properties. Finishing land turnover remained robust.

Latest Real Estate Institute data showed the average all-farm price continued to hover about the $27,000/ha to $28,000/ha level, he said.

Dairy land continued to average about $37,000/ha to $38,000/ha or $35/kg MS.

Finishing land continued in the $27,000/ha to $30,000/ha range, grazing land prices were volatile depending on the regional mix of sales and while arable prices had pushed up, the turnover in Canterbury, the main arable region, had been notably lower than usual.

As well as referring to institute figures, Williams looked at what he said was a wide variation in regional prices and trends for different farm types, taken from just-released Quotable NZ data for 2016.

Though lagging the market by eight months, the figures provided an insight in regional differences.

They were often associated with factors such as weather, soils, contour, location, environmental regulation and productivity.

Prices across all farm types were buoyant over the calendar year, driven by buyer focus on the long-term returns from owning land, record low interest rates, productivity improvements, a different mix of buyers including foreign and equity investor interests, efficiency gains from amalgamating neighbouring blocks, improving dairy prices, general buoyancy in all asset prices, high cash returns in horticulture, and a restricted supply of quality properties.

They had proved a stronger influence than the challenges facing the sector with the lingering effects of the two-year dairy downturn and its associated impact on dairy support and arable returns, increasing regulatory requirements and lower livestock production.

For dairy land there was a wide range of sale prices with the Taranaki average of $50,300/ha and $60/kg MS being the highest.

In following order were Waikato $46,100/ha and $51/kg MS, Bay of Plenty $36,200/ha and $45/kg MS, Otago/Southland $36,100/ha and $31/kg MS, Manawatu/lower North Island $33,300/ha and $33/kg MS, Canterbury/West Coast $32,900/ha and $36/kg MS, Northland/Auckland $26,800/ha and $28/kg MS.

That provided a national figure of $40,300/ha and $42/kg MS.

Taranaki’s return on a land value to milk payout basis was more than double that of Northland/Auckland, Williams said.

Taranaki featured amalgamations of smaller neighbouring parcels to improve operating efficiencies, soil and weather suited to dairying and limited amounts of land that could be converted.

In contrast, Northland’s soil and weather provided tougher conditions, often too dry or too wet, and leading to income volatility.

For finishing properties, Bay of Plenty had the highest average price at $32,200/ha but its average sale price per stock unit of $1900 was below the Canterbury/West Coast figure of $2577.

The Canterbury/West Coat average sale price was lower at $28,900/ha. The stock unit figures looked very high, raising questions about the data, he said.

Manawatu/lower North Island finishing farms sold at $23,100 with a stock unit price of $1574 followed by Northland/Auckland $23,900/ha and $1254/su, Gisborne/Hawke’s Bay $19,800/ha and $1292/su, Otago/Southland $19,100/ha and $1637/su, Waikato $19,000/ha and $1565/su and Taranaki $15,100/ha and $1619/su. The national figure was $22,300/ha and $1677/su.

Of the 36 arable farm sales during the year, 22 were in Canterbury but the average sale price was $37,400/ha, trailing Gisborne/Hawke’s Bay at $73,900, Manawatu/lower North Island $46,400 and Otago/Southland $43,500.

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