Banks re-entering the market, vendor finance, helps drive spike in dairy farm sales, the REINZ says

Banks re-entering the market, vendor finance, helps drive spike in dairy farm sales, the REINZ says

Banks "re-entering the market" helped drive a total of 30 dairy farm sales in December almost matching the 31 dairy farms sold in the six months from June to November last year, the Real Estate Institute of New Zealand's (REINZ) latest rural market report reveals.

The 30 dairy farms sold in December was the most in one month since 41 in May 2008. REINZ said a total of 96 farms sold in December, up from 93 in December 2009 but down from 128 in December 2008.

REINZ rural market spokesman Peter McDonald said the "rush" of dairy property deals in December had helped lift the median farm sale price to its highest level of 2010. He said the sales rise was due to banks re-entering the market although they were showing a strong preference for supporting substantial purchasers at the top end of the market. Vendors leaving in finance had also helped make many of the sales happen.

"From NZ$968,500 at the end of November 2010, the national median farm sale price rose to NZ$1,150,000 for the three months to December 2010. This is a 15% increase on the median of NZ$1,000,000 for the last three months of 2009, but still below the median of NZ$1,525,000 for the equivalent period in 2008," said McDonald.

Based on the median price of NZ$3.59 million, the 30 dairy farm sales were worth more than NZ$108 million.

McDonald said the 30 dairy farms sold in December was "a huge boost" for the rural sector.

“It marks a return to confidence in dairying which is more than justified by the positive returns being achieved,” he said.

McDonald said the price per kilogramme of milkfat solids averaged NZ$41 in December, up NZ$4 per kilogramme from November figure, although it ranged from NZ$29 per kilogramme to NZ$63 across the country.

“There was also a huge variance in the price per hectare with two farms in Taranaki selling for approximately NZ$58,000 per hectare and others for less than NZ$25,000 per hectare. This wide variation in prices was experienced throughout the country.”

Fonterra said last month it expects to pay its dairy farmers NZ$6.90 per kilogram of milksolids in the 2010-11 dairy season. The dairy co-operative said that means a 100% share backed farmer should earn, on average, the equivalent of NZ$7.30-NZ$7.40 before retentions, comprising milk price (per kgMS production) plus distributable profit (per share held).

"On a cash basis, the same farmer is forecast to receive a total of NZ$7.15-NZ$7.25, comprising milk price (per kgMS) and dividend (per share) - with the balance of the profit being retained by the Co-operative," Fonterra said.

That follows a 2009-10 payout of NZ$6.70 before retentions, up from $5.21 in the previous year.

See REINZ's rural market statistics here and read REINZ's statement below:

A rush of dairy property transactions in December has helped lift the median farm sale price to the highest level of the year in the latest Real Estate Institute of New Zealand (REINZ) Rural Market statistics released today.

“The 30 dairy farms sold in December is a huge boost for the rural sector and has brought about a significant improvement in the market,” says Real Estate Institute of New Zealand rural market spokesman Peter McDonald. “It marks a return to confidence in dairying which is more than justified by the positive returns being achieved.”

From $968,500 at the end of November 2010, the national median farm sale price rose to $1,150,000 for the three months to December 2010. This is a 15 per cent increase on the median of $1,000,000 for the last three months of 2009, but still below the median of $1,525,000 for the equivalent period in 2008.

“The price per kilogramme of milkfat solids averaged 41 dollars in December, up 4 dollars per kg on the November figure, but across the country ranged from 29 per kg up to $63 per kg,” says Peter McDonald. “There was also a huge variance in the price per hectare with two farms in Taranaki selling for approximately $58,000 per hectare and others for less than $25,000 per hectare. This wide variation in prices was experienced throughout the country.”

With the highest price paid $18.2 Million, the average size of the dairy farms sold in December was approximately 146ha, with an average milk solid production of 982kg/ha. The average price per hectare was $38,479, almost $5,700 up on the per hectare price for dairy farms in November.

In the last three months of 2010 there were 213 farm sales, an increase on the 170 sold in the three months to the end of November, but still down on the 241 sales in the three months to December 2009.

“The upturn in sales is due to the banks re-entering the market” says Peter McDonald. “However they are showing a strong preference for supporting substantial purchasers at the top end of the market. Vendors leaving in finance has also helped make many of the transactions happen.”

Compared to the last three months of 2009, the dairy farm sales raised median prices in Southland from $916,594 to $3,422,125 and in Taranaki from $2,125,000 to $2,664,438 for the three months to the end of December 2010. In other districts there have been median price increases on the same period in the previous year from $491,000 to $662,500 in Northland, $812,500 to $880,000 in Manawatu/Wanganui, $817,269 to $1,705,000 in Nelson, $520,000 to $2,800,000 in West Coast, $1,200,000 to $1,682,750 in Canterbury, and from $630,000 to $747,500 in Otago.  But compared to December 2009,  median farm sale prices at the end of last month were down in Auckland from $1,110,000 to $856,2500, Waikato from $1,550,000 to $1,500,000, Bay of Plenty from $997,500 to $875,000, Gisborne from $712,500 to $510,000, Hawkes Bay from $1,122,500 to $853,000, and Wellington from $575,500 to $525,000.  

Purchases of grazing and dairy support blocks were lower than last year but Peter McDonald expects buyer interest to improve as a consequence of the upswing in the market for dairy farms.    

The national median selling price for a lifestyle property in the three months to December 2010 was $445,000, which is up on the median of $431,750 for the three months to November 2009 but down on the median of  $464,000 for the last three months of 2009. The median prices for lifestyle properties were highest in Auckland at $720,000, and lowest on the West Coast at $210,000.

 A total of 1,089 lifestyle properties were purchased in the three months to December 2009 which is an increase on 1,076 in the three months to November 2010, but fewer than the 1359 sold in the three months to December 2009.

 

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"Based on the median price of NZ$3.59 million, the 30 dairy farm sales were worth more than NZ$108 million."

The banks will be happy - if they have insisted on higher equity they may have reduced their exposure to dairying by up to $50 million. That would leave around $31,950 million to go.

Come on chaps dont be so naive, are these all vouluntary sales? How many farms on the market actually want to be on the market and how many have been told that they have to sell their farms or 'we will' banks

Agree Cameron. I heard a comment recently that a very high proportion of farmers with a major bank are not allowed ( by the bank ) to write a cheque without permission from the bank. I'm not sure if this is nationwide for that bank or just the particular area --but it is a major farming area.

So Colin another 9000 sales and the job will be sweet. 

That would require keeping this monthly spike in sales going for each month of the next 25 years.

I can't really see that happening.

And who were the clowns that wanted to go hocking off all our farms to overseas interests?
Because apparently we needed a few one off capital injections to go spending on consumer goods.
Rather than the massive ongoing injection of capital farms give NZ.

A couple of  things, First the definition of vendor finance, I would think that some of the vendors made to sell and the vendors still have some debt and have been put in equity partnership. How many of those dairy sales were My farms and don't forget Nga Tahu purchases and sales. I am aware that one bank has parked up debt for some of the recent conversions and would assume they are assisting "vendor Finance" The elephant doesn't forget

Second, the return to dairy farmers is based on shared up suppliers, a lot of the conversions were budgeted on unshared supply for 3-4 years and there is a  lot of dairy supply in that category. Also over the last 3 years a lot of dairy guys have sold supply shares to reduce debt which helps in the short term but affects income eventually.

Be interesting to see breakdown of sales by purchaser probably would add a bit of balance to the article."banks re entering market....... showing support for substantial purchasers at the top end of the market"  aka My Frams and Nga Tahu these  My farms touting 17% return on investment are only looking at recent conversions where a lot of infrastructure been done but still a work in progress in terms of increasing production and size matters. Don't get too excited still plenty of dairy farms for sale with no buyer interest, as for sheep and beef farms no ones is excited about those banks will only consider at a hugely discounted price before considering finance.

Hi Janette. I'm going to follow up some of these issues today.

Also Gareth - how many, if any, of the MyFarm investors are the govt - NZ Super, ACC etc

Hi Gareth.

What may be revealing as to whether these farm sales reflect a free and open market are the relationships between vendor and purchaser banking groups.

In a free and open market any financing of the purchaser should be independent of which bank(s) are owed money by the vendor.

Yes, good point Colin.

we sold a dairy farm in December - was part of a family estate.  Realised less than we had hoped for but it wasn't a forced sale.  Interestingly a senior agribank manager was one of the interested parties so it must be nearly at the point where they are good value ...Think that the dairy market will not rebound until the Crafar and CHH farms have been taken out of the equation.  It certainly isn't holding back the value of cows.  Have just been out with livestock agent and am looking at around $2000/cow for a quality herd.

I've also been following the price of cows.  Where I have been looking there were a few $2k/cow sales earlier on, but sellers asking for $2200/cow now are settling for up to $400/cow less.  Do your research, there are some very good salesmen working as livestock agents who don't have your best interest at heart.  Then again if you have funds from a sale then you probably aren't too concerned on what the bank sees as security value. ;-)

It didn't take long for all the 'know it all' idiots, who were saying we should be selling all the farms off to overseas interests, to be proven completely wrong.

Yes, too many know-alls who preach this and that, but when you dig deeper who are they- often bloggers who aren't actually out there doing the business.

Yeah the worrying thing is when you get that sheep mentality (excuse the pun) where one or two people start pushing a dumb idea, then others seem to jump onto it because it's the flavour of the month.

Like about 6 months ago when some of the rubbish was going around about how we'd be better off selling our farms.
Which anyone with half a brain knows is ridiculously stupid, given they are our main source of income, and only look to be much more lucrative in the future.