Farm prices hold steady despite low dairy payout; little sign of distressed sales

Farm prices have been holding relatively steady in the latest Real Estate Institute of New Zealand rural data despite fears lower dairy prices would force down land values.

There's only been a small drop in the median sales price per hectare for dairy farms to $35,304 for the three months ended July 31, compared to $35,531 in the three months ended June 30, and down from $36,673 in the same period in 2014. Compared to July 2014, the Reinz Dairy Farm Index has fallen by 12.1 percent.

Reinz rural spokesman Brian Peacocke said there had been few dairy farm sales in the past month and it wouldn't be until the sales season resumes in October that any clear signals will be given on prices, and there was scant evidence so far of any forced dairy farm sales after ringing around agents nationwide.

"There's only been one distressed sale at this stage and that's a farm located in Southland and that was already happening before the most recent milk price forecast," Peacocke said.

The key issue for many is how long reduced milk payouts - with Fonterra Cooperative Group forecasting $3.85 per kilogram of milk solids for the 2015/16 season - will last, with particular concern for more indebted farmers and 50/50 sharemilkers, he said.

Peacocke said he was not expecting to see a lot of distressed sales despite two seasons of low payouts because farmers had plenty of advance notice and are taking action such as culling lower performing animals and selling surplus assets.

Banks were also being supportive to date though some conversations are taking place with farmers, and Fonterra had added a 50 cent/kgMS two-year interest-free loan to its shareholder suppliers, he said.

Some Northland farmers have also begun changing land use to beef from dairy in response to the economic situation, he said.

The Reinz data showed there were 79 fewer sales of all farm types for the three months ended July 31 compared to the three months through June, and the median price per hectare for all farms sold was down 4.6 percent $27,796, compared to June, though up 4.2 percent on an annual basis.

Peacocke said the news has been brighter for other rural sectors with record prices being paid for beef, good prospects for lamb, improving prices for wool and a buoyant market in the kiwifruit and pipfruit sectors.

"Speculation regarding land values can only be answered by sales evidence, which to date, shows prices holding steady," he said.

Grazing properties accounted for the largest number of sales at 44 percent in the three months to July, followed by dairy at 9.5 percent.

The lifestyle market has been particularly strong with a 36 percent lift in sales volume in the three months to July compared to the same period in 2014. A total 2,111 sales were recorded in the three months to July, 32 more than in the three months to June.

There was also a near record value of lifestyle block sales in the July year at $5.22 billion. The national median price for lifestyle blocks has risen by $30,000, or 5.7 percent, to $555,000 in the three months to July compared to the same three months in 2014, and is tracking $5,000 behind the high reached in May.

(BusinessDesk)