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Farm prices and sales volumes have collapsed in the last two years as the withdrawal of easy bank lending has dried up farmers’ appetites for capital gains, fresh figures show.

The slump in the number of transactions is expected to ripple out through the rural and provincial economies, given the surge in lending and activity through 2006 to 2008 helped drive spending on coastal and provincial residential property.

The national median farm sale price was NZ$1.045 million in the three months to February, down 40% from the NZ$1.75 million seen in the three months to February 2008, Real Estate Institute of New Zealand figures show.

There were 11 dairy farm sales in February and 34 in the three months to February, which is down 78% from the 158 seen in the three months to February 2008, which was seen as the peak of the dairy boom. A sharp drop in the forecast Fonterra payout and a much more rigorous approach to farm lending by banks has triggered the collapse.

REINZ President Peter McDonald said there were “still reasonable levels of inquiries for all types of farms, but they do not seem to be resulting in completed transactions.”

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South Island dairy farming and processing group Synlait has announced it has abandoned its plan for a NZ$150 million-plus stock market float later this year after a disappointing response from investors. (Updated with background and statement)

Competition for investor cash has been intense in recent weeks as rural services and financing companies PGC and PGG Wrightson have gone into the market to raise rights issues cash. There have also been concerns about Synlait’s debt and the willingness of its main shareholder Mitsui to go along with a float.

Here is the statement below from Synlait.

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By Bernard Hickey

Since we broke the story about animal neglect on a farm near Benneydale in the Crafar Farms group last week I have been deluged with emails and comments from many people in the rural community citing examples of animal neglect on other large herd dairy farms, as well as neglect on other Crafar Farms.

Unlike the video provided by ‘Just another farmer’, I have not been able to verify any of these claims. But they are unprompted and the details involved carry the ring of truth, if not proof itself. I’m in no position to investigate all this evidence in any systematic way. It’s time for the government, MAF, Fonterra, Federated Farmers and DairyNZ to step up and launch an official inquiry into the sustainability of New Zealand’s massive herd dairy farms in terms of their environmental sustainability (effluent treatment and water use) and in terms of animal neglect.

The growth in large herd dairying over the last decade has been explosive. Often funded by massive debt, these farms with more than 1,000 cows have changed the nature of dairying in New Zealand. They require a different style of management, different corporate structures, different ways of managing and recruiting staff, and different ways of managing animals.

New Zealand has never done a stock-take into a major change in the way we use land. It’s time to take a breather and work out whether this structural shift in our biggest export industry can be sustained without damaging our reputation, blowing out our our debts and putting massive strain on workers and animals.

The big conversions and irrigation driven expansion is continuing apace. Applications to build 19 farms with more than 22,000 cows on 25,000 hectares in the Mackenzie Basin are being considered by Environment Canterbury, the ODT has reported.  This type of farming requires intensive irrigation and cows to be in cubicle barns in winter and parts of Summer.

Some tough questions need to be answered:

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The average price of wholesale milk powder in Fonterra’s internet auction for August was US$2,301, up 26% from July’s price, said internet auction firm globalDairy Trade. (Update 1 with currency reaction.)

Ironically, the result pushed the Kiwi dollar up half a US cent above fresh highs to over 67 US cents.

“We are seeing signs of strengthening demand and prices, and that’s encouraging, but the market remains dynamic with trends difficult to forecast,” said Nigel Kuzemko, Director Commercial and Strategy, Fonterra Trade and Operations.

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The median dairy farm price was down 25% to NZ$3 million in the three months to June from the same three months a year ago, while dairy farm sales volumes dropped 54% from a year ago to 55, REINZ figures (published below) show.

The REINZ figures should be taken with a grain of salt given the spotty volumes, but they show the dairy sector struggling under the weight of a falling Fonterra payout. The biggest impact has been on those ‘marginal’ areas that depend on the dairy industry, in particular finishing farms.

The median price for finishing farms has more than halved to NZ$1.035 million from NZ$2.35 million a year ago. Volumes sold of these farms crashed to 28 in the three months to June from 137 in the same period a year ago, although that will have been exaggerated by the effects of the 2007/08 drought when these farms .

There were 80 farms sold in total in June, which is down from an average of 199 in June for the last four years.

Here are REINZ’s comments below. Again we welcome your comments and insights on the data below as part of our collaborative journalism thing. Here is a link to our interactive charts on farm sales volumes.

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By Bernard Hickey

South Canterbury Finance said on Friday afternoon it expected to report a NZ$37 million net loss for the just completed year to June 30 after a weak property market forced it to take a NZ$58 million provision for bad debts and non-performing investments. This was South Canterbury Finance’s first loss since its foundation in 1934. (Updated to include comments from interview with CEO Lachie McLeod about the succession issue for Allan Hubbard, 80, and a potential IPO or the introduction of a new shareholder.)

South Canterbury Finance said its principal owner, Allan Hubbard, had injected NZ$40 million of new capital in the form of cash into the business and would provide further support in case there were further losses. South Canterbury did not disclose the size of the potential further support.

South Canterbury also said it was looking for other sources of equity over the next 3-4 months, but did not immediately say what form this might take.

Chief Executive Lachie McLeod told interest.co.nz in an interview that the new equity could come in the form of a new cornerstone shareholder or even an initial public offering (IPO onto the share market. This decision to look for a new shareholder or shareholders was linked to the “start of the succession process,” McLeod said, referring to the dominant shareholding of Allan Hubbard, aged 80.

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