A cocktail of “frustration” at poor weather, an ageing demographic and a desire to sell before a retreat in milk prices, is provoking ideas of a surge in farm sales in major New Zealand dairy areas.
The Real Estate Institute of New Zealand revealed an end to a strong run for prices of dairy farms, which as measured by an index dropped 4.4% in the August-to-October period, as compared with values in the July-to-September quarter.
The retreat, after a run which saw the index up 9.2% year on year in October, came amid signs of a jump in the volume of dairy operations being put up for sale, after a winter when many farmers were reluctant to sell amid what Reinz termed “extreme climatic conditions”, marked by record rainfall in many areas.
“During October… early evidence emerged of the likelihood of record numbers of farms coming onto the market in the main dairying areas of Waikato and Southland,” said Brian Peacocke, the institute’s rural spokesman.
Sell nearer the top
Causes of the potential surge in sales included “frustration” at the poor weather, which saw New Zealand milk output get off to a slow start to 2017-18, and at a longstanding labour shortage, Mr Peacocke said.
For some producers, “succession planning”, reflecting an “increasing age of farmers”, was prompting sales.
Mr Peacocke also flagged that milk price payouts from processors had “showed signs of easing”, a factor discussed in Agrimoney’s Markets Extra.
Indeed, there was an “awareness it is probably better to sell when the dairy payout is at a reasonably healthy level, as opposed to when the payout is under
Milk price downgrades
Australia & New Zealand Bank on Wednesday cut to NZ$6.25-6.50 per kilogramme of milk solids its forecast for New Zealand farmgate milk prices in 2017-18, while ASB cut its estimate to NZ$6.50 per kilogramme of milk solids.
The estimate came in below the NZ$6.75 per kilogramme expected by Fonterra, the country’s top processor, although remaining above NZ$6.00, meaning most producers will be making money, on ASB estimates.
The downgrade ironically reflects an improvement in spring weather in New Zealand, which has enabled a recovery in milk output in the country, the top exporter, with volumes rising in the European Union and US too.
Large supply vs weak demand
Reinz underlined that there were “a large number of dairy farms on the market in Waikato and Southland in particular, reasonable stocks in Northland”.
However, enquiry levels had been “poor”, and actual sales “low” at “five sold in October throughout New Zealand”.
The month had seen “one very strong sale” made at a price of close to NZ$70,000 per hectare in Waikato, with three sales at “lower to modest levels” in Southland.
There was “no recordable activity in the other main dairy areas of Taranaki, Manawatu and Canterbury”.