Milk price dip injects 'caution' to NZ land market

The retreat in milk prices, combined with rising interest rates, has softened the New Zealand farmland market, which has slowed rapidly in price terms amid a pick-up in volumes.

Farmland prices were 0.1% lower in the March-to-May period than in the three months to April, the Real Estate Institute of New Zealand said.

The decline, while small, contrasted with a 6.4% rise revealed in the previous report, and with a year-on-year increase of 13.7%.

And, indeed, with land changing hands at an average of NZ$25,018 per hectare - and with the number of farms sold hitting 1,881 in the year to May, up 26% year on year the institute said that the market remained "strong" and illustrated "the healthy state of the rural sector".

'Hint of caution'

However, Brian Peacocke, the Reinz rural spokesman also highlighted a "hint of caution" in the market, reflecting "an easing in the dairy payout [and] increasing interest rates", besides enhanced environmental concerns.

Fonterra - the group responsible for processing the vast majority of milk in New Zealand, the top dairy exporting country last month cut its forecast farmgate milk price for 2013-14 by NZ$0.25 per kilogramme of milk solids to NZ$8.40 per kilogramme of milk solids.

The move had been much anticipated, after a tumble of some 25% in dairy prices in four months at Fonterra's benchmark GlobalDairyTrade auctions.

The co-operative has forecast a drop in prices in the newly started 2014-15 season to NZ$7.00 per kilogramme of milk solids.

Dairy underperforms

Dairy farm prices indeed fell 0.5% in the March-to-May period from those in the three months to April.

And, at 5.1%, dairy farms recorded a below-average annual rate of appreciation for the year to May.

Reinz again underlined "very strong activity" in the kiwifruit sector in North Island's Bay of Plenty.

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