Dairy land bottomed out in price??

The price of dairy land may have bottomed out, accord to a farm investor. MyFarm director Andrew Watters said Fonterra's announcement last week of a 55c a kg of milksolid lift in the forecast payout for the coming season may have put a floor on land prices reports The ODT. His investment company has recently been active in the market, taking advantage of prices which he said were up to half their peak of 18 months to two years ago. Mr Watters said that as with the land price correction of 1987, the price of quality farms had fallen 10% to 20%, while poorer quality properties had dropped 50%. A top farm in Central Southland that 18 months to two years ago was selling for $40 to $45 a kg/ms, was now making $32 to $35 kg/ms. Now they can be bought for a price 14 times the earnings before interest and tax (ebit) and be viable on a payout between $4.10kg/ms and $4.20kg/ms. He had just completed a $7 million 14-investor syndicate for a 255ha farm at Waihopai in Southland and he said it came together quite quickly. Last week, he bought a 205ha farm at Roslyn Bush and was compiling a syndicate. The National Bank is advising dairy farmers to treat cash as king. For too long, farming has been driven by capital gain, but in a recent Rural Report the bank warned those rates of return might not be repeated for some time. While capital gain has been "a partial saviour" of the financial performance of agriculture, the bank said it had been at the expense of adequate cash return, and the financial strength of the business had eroded. "Increases in value have exceeded the growth of profits to the point where capital gain has dominated the overall return. Capital gain should be more related to the underlying profit."