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Not one dairy farm sold in August as NZ farm sales collapse
Not a single New Zealand dairy farm changed hands in August as overall farm sales fell again during "a seasonally quiet period", figures released by the Real Estate Institute of New Zealand (REINZ) show.
There were 51 farm sales nationwide in the month of August, compared to 146 in August 2008. August sales were 70% below average August sales over the past four years, the same as in July when there were 52 farm sales.
There were no dairy farm sales in August, compared to 19 in August last year and 17 in August 2007. The overall total of 51 farm sales was dominated by 29 grazing farm sales, the same as in July, although these have dropped down from 79 sales in August 2008 and 81 in August 2007.
The REINZ said calving and coming out of the wintering period contributed to a seasonally quiet period for the rural real estate sector.
REINZ rural spokesman Peter McDonald said the fact there were no dairy farm sales in August "in itself is not of concern".
"We expect August/September to be slow. With the good prices at the last two Fonterra powder auctions, raising prices by 50 percent over the past three months, and with Fonterra hedging against the impact of the high dollar, there's a quiet feeling of confidence returning to the dairy industry," McDonald said.
"As a result of this, we would expect to see some action by October/November, with farms coming on the market and people registering their interest with agencies," he said.
"The fact the season ended with the average national price of $44 per kilogram of milk solids and more than $32,000 per hectare was a good result that has set the scene for a good quarter ahead."
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McDonald said he believes the rural market is as much driven by banking policy as it is by payouts.
"Banks have a strong hand to play in the rural market. I hope we will see a little more thought go into bank lending with a greater emphasis put on good budgets rather than on equity," he said.
The median farm sale price in the three months to August was NZ$1 million, compared to NZ$1,742,500 in August 2008. However, the drastically low level of sales in August 2009 make the median price much more volatile than when there were three times as many farm sales last year. Dairy farms have recently been selling at a median price of between NZ$3 million and NZ$4 million.
From Steven Keen today, "....
From Steven Keen today,
".... This time, while the rescue has worked, the recovery they expect afterwards can't happen"”because there's almost no-one left who will willingly take on any more debt."
http://www.debtdeflation.com/blogs/2009/09/15/it%e2%80%99s-hard-being-a-...
So who's going to buy these farms for sale?
''McDonald said he believes the
''McDonald said he believes the rural market is as much driven by banking policy as it is by payouts.
"Banks have a strong hand to play in the rural market. I hope we will see a little more thought go into bank lending with a greater emphasis put on good budgets rather than on equity," he said.''
LOLs. I dont think he really means what he appears to be saying - if banks do indeed start putting emphasis on good budgets rather than equity he wont be making many dairy sales in the next few years..........
And beneath that blather about 'not worried, its a seasonal thing' - I would imagine he and his ilk are VERY concerned. Not a single dairy sale in a month. After all how do you price an asset if there is no market for that asset?
Farms sales don't settle until
Farms sales don't settle until 1 June for Dairy and 1 July for Drystock.
I'll buy a farm at
I'll buy a farm at the right price, not the price the banks wants, i do like a return on my investment. These prices are still stark raving mad and need to drop %50 more. I don t care if they dont, I will invest elsewhere,interesting game buyers sitting on the sideline sellers getting desperate, first time Ive had to deal with a bank. I can wait as long as it takes.
Talked to a friend farming in France, its getting tough prices falling, incomes down credit getting hard to get,sounds familiar.
If the market were to
If the market were to rule ,farms would sell when the business case ,plus lifestyle told a sensible story I would think.Wonder if the banks,or the government (read us)can afford to let this happen?
Anyone remember those TV ads
Anyone remember those TV ads encouraging young kiwis to buy a dairy farm and get a future. Seems like we need more of those???
That graph is simply terrible
That graph is simply terrible - I spent quite a while looking at it before I realised that the vertical scale does not start at zero. And how come the labels are on the right rather than the left? And why the labels - indicating actual numbers of sales - shown to 2 decimal places?
No "Must Sell Now!" estate
No "Must Sell Now!" estate sales? Wow. It is a tough market.
<blockquote> “The fact the season
There is a very interesting quarter ahead, and that quote may go down as epitomising the delusion still prevailing in some circles. Divide the quoted numbers by three, and dairy farm sales may resume.
Bad graphic or not, that's
Bad graphic or not, that's a very interesting graph (and yes I do hate bad and misleading graphics)
No matter what way you look at it, we are seriously in the poop if we think this 'recession' is over! When the farmers are feeling the crunch... the real problems are still yet to reach Mr Joe Average. If the farmers make a record payout, it takes months for the effect to reach all NZers, makes sense that the 'don't say it'... bad news might take a while to be accepted too eh?
I'm ready to buy a
I'm ready to buy a business too...
Would you like one...
240K includes everything, assets 120K at valuation (market price? no market!) earning 35Kpa for working owner... or was.
Any takers?
Dairy farming has come back
Dairy farming has come back to one of the fundamentals of investment , return on equity . Excessive exuberance pushed farm prices to giddy heights . The Crafars and their financiers were factoring not only the present , but also the here-after , in their bullish prognostications . Enter the chill wind of reality . And are any of us surprised ?
I would buy back in
I would buy back in at PeterR's price, thats about where I see it being a cashflow positive proposition.
Shorty - " Farms sales don't settle until 1 June for Dairy and 1 July for Drystock."
Thats pure rubbish.
"Banks have a strong hand to play in the rural market. I hope we will see a little more thought go into bank lending with a greater emphasis put on good budgets rather than on equity," poor old banks, its very easy to lend on lots of equity, but try and make a positive cashflow and the debt levels got to be way down.
Stevel - having been involved
Stevel - having been involved in dozens of farm sales I have some idea on how it works. Most dairy farmers have May balance dates to coincide with when they dry off (stop milking) and the final payout from fonterra. 1 June is when 99% of farm sales will settle. The reason I mention this is that residential sales are measured on settlement date not unconditional date - thus farm sales for August are a bit pointless (19 farms sales in August 08 seems a bit insignificant in the scheme of things) unless they are measured on unconditional date - which would be a bit premature. But maybe you are a premature type of guy....
In response to the question,
In response to the question, who is going to buy the farms?... my bet is that in future years we will see increased purchases by Chinese investors, in their global push to secure commodity sources (be it hard commodities, energy or food and water sources). What will be very interesting will be what happens to Crafarms. If the Chinese buy those farms and other central Nth Island properties on the market by Graham Hart, and they set up a factory in Taupo, it could be game on... Unless Fonterra comes up with a viable long-term structure for NZ farmers which allows them to reduce their debt levels, rather than increase them to fund Fonterra's elusive "value-add" growth strategies, then the Chinese will be able to either:
A. Pick up those farms in the productive central Nth Island, Waikato and Taranaki which the banks but on notice because of their unsustainable debt reservicing; or
B. Lure farmers away from Fonterra with the prospect of higher payouts, no capital requirements to purchase compulosry supplier shares and more factourable payout terms.
This will have the spiral effect of piling more debt on those farmers remaining in the Co-Op to purchase the shares of those leaving, at the same time as depriving Fonterra of valuable milk supply to keep the high fixed costs of the factories operating.
Interesting times indeed....
Shorty - I have purchased
Shorty - I have purchased and sold several rural properties, none of which settled within your time frame. It is sometimes more conveniant (sp) to settle on June 1, but not 99% of the time! I have no doubt that YOU may be somewhat premature, however you just veiw yourself as "normal".
I am neither normal nor premature!
Thanks!
From the sidelines Says: Unless
From the sidelines Says:
Unless Fonterra comes up with a viable long-term structure for NZ farmers which allows them to reduce their debt levels, rather than increase them to fund Fonterra's elusive "value-add" growth strategies, then the Chinese will be able to either:
I think Fonterra is consumed by its own debt levels. 11.3 billion is more than a little, i expect farmer shareholders to be asked to stump up with some capital. Dairy farmer debt levels in many cases like Crafars, are beyond saving even if the payout goes through the roof.
Shorty
Ive been involved in numerous farm sales and purchases, in one case i sold a dairy farm with takeover in one week ,at 10k an acre, I was a very willing seller.
I suggest you throw the old rule book out the window ,the times have changed. have you got anyone interested in dairy or sheep at anything close to vendor expectations? Im a purchaser but real estate agents are in cuckoo land, if I have to I will move off shore rather than pay these prices.
AndrewJ You are spot on.
AndrewJ
You are spot on. Fonterra has been able to attract unsustainable levels of debt on the basis of a S&P rating which in turn is based on the concept of sub-ordinated debt, whereby payments to farmers for milk are sub-ordinated (i.e. farmers will forego milk payments to allow Fonterra to pay all its debts). Sounds good in practice, but I wonder if S&P looked beyond Fonterra to see if farmers were themselves in a financial position to underwrite Fonterra's debts? The risks of building a debt structure on top of a debt financed structure!!! This should sound familiar to anyone who was awake during the past year.
AndrewJ - "i expect farmer
AndrewJ - "i expect farmer shareholders to be asked to stump up with some capital. "... I thnk the answer needs to be...Downsize the Meglamania, and remeber who the Boss of this thing called Fonterra is.
I think Fonterra's overvalued shares
I think Fonterra's overvalued shares may be in for an overdue sharp decline towards reality. Their share valuer has been replaced - nothing of course to do with increasing redemptions.
http://www.nzx.com/markets/NZDX/FCG010/announcements/2852602/Fonterra-Sh...
mouse: <blockquote> and remeber who
mouse:
I presume you mean John Key and his ministries?
As I have said in
As I have said in other threads --- the Co-op model for Fonterra cannot work any longer given its financial situation and needs. Just look at the number of farmers that lined up to supply the new Talleys / Open Country (?) plants. They can sell the Fonterra shares , reduce debt if required and still get paid a similar price for their milk
( for this season at least ). As From the Sideline says -- if another plant is set up in Taupo or anywhere in the North Island by the Chinese or someone else then the same thing will occur.
So basically the Fonterra farmers need to wake up and face reality.
Ross Reality isn't very pretty.
Ross
Reality isn't very pretty. It was only a few years ago that we felt a new wave of wealth as our shares increased yearly, BNZ automatically increased the overdraft, viewing shares as 'good as gold'. Land prices went through the roof on Fonterras predictions of a new era of wealth on the 'cows back' while they borrowed heavily to make unrealistic and market distorting payouts.
The people who really need to wake up to reality are those on the state tit. the ones on the cows tit are well aware of their predicament.
PeterR - No, Farmers who
PeterR - No, Farmers who own Shares and Supply are the Owners of Fonterra still... Some might be personally in Bad Shape, But the Co-op model that got us thus far is still alive and well... and frankly should be a model and inspiration of NZ Inc.
The question is... How much control do the Banksters have on our collective Balance sheet, Can we Farm sustainably again... and trade our way out of this?
Don't get too hung up
Don't get too hung up on the Chinese connection being the only big player in dairy farm purchases. Although it looks like Allan Crafar has done an excellent job of scaremongering (he may not be the hick many of you consider him to be.)
Quess who lives and breathes in our back door(Central Plateau), has many interests in agriculture and has recently received $200m +. The concept works for me.
They also would be like the Chinese, waiting for the right price and to hell with what the banksters are trying to create for the benefit of their balance sheets.
A return to fundamentals is well overdue. After all fundamental means you must be mental if you are not funded properly
mouse: Co-op models can be
mouse:
Co-op models can be great, but Fonterra is a very poor instantiation of the model. Alive: yes, Well: no.
At this point I suspect Fonterra is in no position to do much without first referencing both its financiers and John Key.
Farmers own the shares, but in reality Fonterra's equity does not account for much more than its intangibles.
PeterR - "Farmers own the
PeterR - "Farmers own the shares, but in reality Fonterra's equity does not account for much more than its intangibles.
Sadly...you are correct, and that means Farmers need to stump up the equity... but this should not be from additional borrowings, rather rebulidilng the [Fonterra] balance sheet from a combination of lower payout to Farmers and cutting Fonterra's Suit according to our Cloth.
mouse: Maybe farmers should cut
mouse:
Maybe farmers should cut their losses, and buy back just the profitable tangible assets.
Diary may go the same
Diary may go the same as forestry as Asia cuts out all the middlemen & jobs in NZ, going to the source and exporting logs. So buying the farms and setting up factories are likely.
Interesting how the majority of those on this discussion agree that dairy/farming is in the poo.
Wonder how long before the residential property click also.
Maybe Fonterra taking on so
Maybe Fonterra taking on so much debt is deliberate. You always have the feeling ever since Ferrier was appointed that they were keen to float part or all of Fonterra at some point. If the pesky farmers keep saying no then "encourage" them with a financial crisis. How long before HO says "There is no alternative - either farmers have to stump up more capital or we have to raise it on the stockmarket" I can just see an IPO followed by a golden handshake and a ticket to Canada.
Stevek - a brilliant hypothesis.
Stevek - a brilliant hypothesis.
Ultimately what does Ferrier care anyway - his other get out of jail card is the NZ government (or more precisely the tax payer). If it all goes teets oop he can either do what you suggest or go knock on John Key's door. We would also then have our own version of 'too big to fail'. Just think Joe Public would be given the once in a lifetime opportunity to invest directly (errr I mean via our tax) in the dairy industry........
You're right Andy, he has
You're right Andy, he has nothing to lose. I forgot about the John Key put. Ferrier has been conspicuous by his absence for a considerable period. Van der Heyden seems to have been the public face of Fonterra for the last 12-18 months. I'm sure he's a nice guy like John Key but where are the innovative high value, high margin products he promised. I'm ignorant on the rural sector but the only innovation I've seen this decade has been an online auction system for milk powder, the most basic commodity they have.
Excuse my ignorance, but how
Excuse my ignorance, but how have Fonterra run up so much debt?. Isn't the milk payout the net profit after fixed costs or have they been paying out 100% of revenue to keep the farmers happy and borrowing to pay for HO, R & D and investment in factories etc and hoping for the best.
I keep hearing on this
I keep hearing on this blog who is going to buy the farms? I can tell you from working in the industry that there is still good demand and interest from farmers to expand and not all farmers leveraged themselves to the point of no return. There is no doubt that a number are in trouble but not all. The biggest hurdle we have at the moment is the banks won't draw a line in the sand as regards to new lending yet, and this is slowing the market down. Buyers are now back to more traditional borrowing looking for returns from the business not from capital gains, and as land prices realign themselves to provide this we will see a return to normal.Also there was a distressed dairy farm sale in Taranaki during August but the National Bank required nondisclosure in the contract. My understanding the price was over $50 kg/ms without shares, maybe Bernard could contact the bank for clarification.
Macka: good to have the
Macka: good to have the balanced point of view. That last sale you mention would be a very good sale, it would be interesting to know the details.
Macka What we had was
Macka
What we had was not normal, in all my farming life the 7 years of bank managers tripping over themselves to lend to anyone, any amount is the most abnormal.
If someone wishes to pay $50 a kg on a $4.50 payout then I would suggest the return is a little light. Debt was confused with money the future will see a line a big one between money and debt. This will impact on farm sales as will the ETS,the talk of CGT and land tax. Profits have been inadequate.
Ive looked at the numbers of buyers and the amount of money chasing farms, its not much. I have friends like me wishing to purchase farms but not at these returns,we have not seen the bottom yet I think we should wait a few years before we look for stability in land prices.
Macka Says: "I can tell
Macka Says:
"I can tell you from working in the industry that there is still good demand and interest from farmers to expand and not all farmers leveraged themselves to the point of no return."
And this applies in all fields, rental properties, factories, share market etc.
NOT everyone got on the bandwagon frenzy of borrow, borrow expand and own nothing the posess....and are just sitting back in a good to reasonable position, even thu the balance sheet may show they own a little less of their assets, keeping an eye on the neighbours property owned by a 'high flier'
Justathought Says:
"A return to fundamentals is well overdue. After all fundamental means you must be mental if you are not funded properly"
The trouble is many cant or are having great difficulty in doing so, and those who have maintained fundamentals, have survived other downturns and have been able to quietly cash in in the past on those who havnt ..
Cant beat good old fashioned common sense for the long haul.
Macka Some wise words from
Macka
Some wise words from Keens
http://www.businessspectator.com.au/bs.nsf/article/good-economic-theory-...
Looking at farm debt levels of %600 of farm GDP my guess we have had the last boom based on debt in the rural sector,although I admit the banks are making a run at one more debt spike.
The person on Fonterra's shareholders’
The person on Fonterra's shareholders' register at 5pm on 31 May will go through end of season adjustments. The final dividend and payout are big incentives for sellers to schedule the settlement date for 1 June.
Andrewj - My parents sold their farm in the South Waikato for $14K an acre in 2005.
PeterR - you say "Co-op
PeterR - you say "Co-op models can be great, but Fonterra is a very poor instantiation of the model. "
Can you cite examples of any successful Co-op models? Particularly in NZ? Or do you mean that if the model is structured properly (allowing for investment in business development, capital structure etc) a Co-op can be great?
Shorty I sold too cheap
Shorty
I sold too cheap should have waited.
Trev. <blockquote> Can you cite
Trev.
Yes, yes and yes, but not in the time I have at the moment. Maybe this evening I will put something together.
Steps, yup, we're here, but
Steps, yup, we're here, but we're waiting... You're right on the money.
Sure I could have a lot more asset if I wanted the debt, but I rather own what I have, than OWE what I have.
Still looking... Real estate agents, business agents are all looking for Pie in the Sky at this point. Will take 2 years I reckon for the reality of the actual realisable value to work out... maybe longer...
What think you?
Andrewj -- my comments last
Andrewj -- my comments last night re Fonterra farmers were not intended to knock farmers ( I've have huge respect for them in general). But I think the Fonterra farmer's dogged adherence to the the Co-op model is going to do their company a huge amount of harm. While I can understand , to some extent,their reluctance to let the "wide boy" Queen St investors in , I think there just has to be a way for them to keep some control while enabling the company to restructure their finances to ensure the right developments to proceed. If its not done then as some one else said yesterday the spiral will only go one way -- down.
Ross - fonterra needs to
Ross - fonterra needs to reduce it's payouts and retain more profit. Some farmers need a dose of reality.
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