A second successive season of dryness of some parts of New
Zealand, coupled with the prospect of higher interest rates, has taken a toll
on farm prices, with dairy farms leading a decline in values.
New Zealand farm prices fell 4.7% in the
December-to-February period, compared with the three months to the end of
January, the Real Estate Institute of New Zealand (Reinz) said.
The decline, while still leaving values up 8.0% year on
year, reflected the return of dry conditions to, in particular, western areas
of the country's North Island, and to west-central areas of South Island.
"Across the country there is an underlying tone of caution"
in the farm market, said Brian Peacocke, the institute's rural spokesman, citing
the "impact of semi-drought in significant areas of the North Island", which is
responsible for most of the country's milk output.
Mr Peacocke also flagged "the emerging reality of interest
rate increase in the short-to-medium term future", with New Zealand last week
becoming the first developed nation in months to raise interest rates, by 0.25
points to 2.75%.
Rates had been at 2.5% since March 2011, and are expected by
many commentators to face further increases, with HSBC saying that New Zealand's
economy appears to be poised for rapid growth, heralding a "hiking phase" for borrowing
Dairy farm prices fell particularly rapidly in the latest
period, by 5.1%, leaving them 3.9% higher than a year before.
Reinz highlighted a "quiet" market in some parts of northern
South Island "due to the dry weather", although conditions in the central
plateau, on North Island, remained "buoyant".
Some areas are suffering a second successive season of
dryness, after the drought early in 2013 billed by Nathan Guy, New Zealand's
minister for primary industries, as the worst in 70 years.
Auckland-based Fonterra, the world's biggest dairy exporter,
last week highlighted that "some regions of the North Island have and continue
to experience dry conditions, with western regions receiving less rainfall than
'Not as widespread'
However, conditions are nowhere near as severe as last year.
"While we are seeing dry conditions impact some regions of
the country, particularly Waikato and Northland, these are not as widespread as
the same time last season," the co-operative said, reporting growth of 4.9% in
milk volumes for the first nine months of 2013-14, to the end of February.
"The South Island has received more consistent rainfall than
the North Island and is contributing to strong production levels for the season-to-date."
Indeed, the co-operative's milk collections last month, at
151m kilogrammes of milk solids, were up 10.6% year on year, a reflection of
the depth of the decline in output early in 2013.
Fonterra made the comments as it raised to 7.5%, from 6.4%,
its forecasts for growth in milk volumes over the full season, to the end of
Milk production, even in dry areas, is being supported by
use of bought-in feed, with farms incentivised by record prices to raise
Fonterra last month lifted to a record NZ$8.65 per
kilogramme of milk solids the price it forecasts paying farmers for milk this
"The lift in forecast farmgate milk price may have a
positive influence on milk supply increasing above our previous forecast."