'Caution' in NZ land market, despite price revival

Prices of New Zealand dairy land recovered sharply, but amid low volumes, as farmers "cautiously" assessed the impact of volatility in values of many agricultural commodities.

Prices of New Zealand farmland overall rose 0.9% in the April-to-June quarter, compared with the average of March-to-May period, selling for an average of NZ$26,612 ($23,130) per hectare, the Real Estate Institute of New Zealand (Reinz) said.

The performance represented a recovery from the 0.5% fall recorded in the March-to-May period, and reflected in particular a rebound in the dairy sector, an increasingly important segment of agriculture for New Zealand, the world's top dairy exporter.

Dairy farms sold for NZ$33,543 ($29,150) per hectare, taking a Reinz index for the sector, adjusting for farm size and location - up 5.2% in the April-to-June quarter, compared with the March-to-May figure.

'Significant drop'

However, the increase comes amid a winter period which is seasonally quieter, especially for dairy farms, of which 69 were sold, compared with 95 in the March-to-May period.

There was a "significant drop in dairy farm sales for the period," the institute said.

"As expected for the crossover period from one season to the next, current activity is reported as being reasonably quiet," Reinz rural spokesman Brian Peacocke said, referring to the New Zealand farmland market overall.

"Farmers and market observers alike are cautiously gauging the potential impact on the forthcoming sales season as a result of clear signals regarding a possible reduction in incomes from the mix of lower product prices, rising interest rates and the very strong New Zealand dollar."

Milk price falls

Auckland-based Fonterra, the world's biggest dairy exporter, in May prepared farmers for a sharp drop in milk prices for 2014-15 to NZ$7.00 per kilogramme of milk solids, from NZ$8.40 per kilogramme of milk solids last season thanks to the weaker market conditions.

And prices at GlobalDairyTrade, the Fonterra-run auction, have continued to decline since, hitting a 21-month low last week.

Indeed, there is now talk of prices falling to NZ$6-6.25 per kilogramme of milk solids, although the course of the global dairy commodity market will depend largely on China, the top importer, over whose demand for foreign supplies there is considerable uncertainty.

Some observers, such as INTL FCStone and Rabobank, have flagged a sharp slowdown in Chinese orders, but Fonterra and the US Department of Agriculture paint a more robust picture.

Rates and currency

Meanwhile, borrowing costs are rising, with New Zealand's central bank expected on Thursday to raise benchmark interest rates for a fourth time, to 3.5%.

This in turn as strengthened the currency, up some 6% against the US dollar so far in 2014, so depressing the competitiveness of New Zealand exports.

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