Rising enquiries for dairy farm sales suggest good outlook for spring, REINZ says; Farm sales, prices fall in three months to July due to seasonal factors

Rising enquiries for dairy farm sales suggest good outlook for spring, REINZ says; Farm sales, prices fall in three months to July due to seasonal factors

A rising rate of enquiries for dairy farm sales suggests good support for the sector once spring gets underway, the Real Estate Institute of New Zealand says.

Farm sales fell slightly in the three months to July from the three months to June due to seasonal factors, which was accompanied by a fall in farm prices, the REINZ said.

“Given the seasonal workloads on farms at this time of year the number of sales has eased back, however, compared to this time last year the number of sales is more than 18% higher," REINZ rural spokesman Brian Peacocke said.

"The fall in the REINZ Farm Price Index this month is not unexpected given the continuing uncertainties in Europe and recent falls in schedule prices," Peacocke said.

“There is increasing enquiry, both from local buyers and offshore buyers, for dairy properties, which may lead to good support for this sector once spring gets underway.  There is also steady enquiry for quality sheep and beef properties," he said.

There were 86 sales in July, up sharply from the 60 sold in the same month a year earlier. Only 2 of the sales were for dairy units. There were 356 farm sales in the three months ended July 2012, 55 more than the same period a year ago, REINZ figures showed.

They contributed to 1,439 farm sales in the year to July 2012, up 50% from the amount of farm sales in the year to July 2011.

Meanwhile, farm prices fell 3.1% in the three months to July from the three months to June, according to a new Farm Price Index produced by the REINZ created with help from the Reserve Bank of New Zealand. The index was 4.4% below where it was in July 2011, the REINZ said.

The median price per hectare for all farms sold in the three months to July 2012 was NZ$17,955; a 22.6% increase on the NZ$14,649 recorded for three months ended July 2011, and an increase of 2.2% on the NZ$17,565 recorded for the three months to June 2012, the REINZ said.

There is more detail on the July monthly sales activity here »

Rural credit growth

Reserve Bank figures show agricultural credit grew by 3.2% in the year to June 2012, the highest annual growth rate since a 4.1% lift in the year to April 2010. 

Annual growth in agriculture credit jumped above 10% in June 2001, and remained high - often hitting over 20% - for almost a decade before falling back below 10% in October 2009.

Growth in annual agriculture credit turned negative through most of 2011, turning positive again at the start of 2012. See our chart following agricultural credit here.

See the release from REINZ:

Data released today by the Real Estate Institute of NZ (“REINZ”) shows there were 55 more farm sales (+18.3%) for the three months ended July 2012 than for the three months ended July 2011.  Overall, there were 356 farm sales in the three months to end of July 2012, compared with 406 farm sales in the three months to June 2012, a decrease of 50 sales (-12.3%).  On a seasonally adjusted basis, after accounting for normal seasonal fluctuations, the number of sales rose by 0.7%, compared to the three months to June.

1,439 farms were sold in the year to July 2012, 50.4% more than were sold in the year to July 2011.  The number of farms sold on an annual basis is now the highest since April 2009.

The median price per hectare for all farms sold in the three months to July 2012 was $17,955; a 22.6% increase on the $14,649 recorded for three months ended July 2011, and an increase of 2.2% on the $17,565 recorded for the three months to June 2012. 

The REINZ Farm Price Index eased by 3.1% in the three months to July compared to the three months to June, from 2,915.9 to 2824.1.  Compared to July 2011 the REINZ Farm Price Index has eased by 4.4%.  Further details on the REINZ Farm Price Index are contained below.

10 of the 14 regions recorded increases in sales volumes for the three months ended July 2012 compared to the three months ended July 2011.  Auckland recorded the largest increase in sales (+14 sales), followed by Canterbury (+12 sales) and Nelson and Bay of Plenty with nine sales each.  Waikato and Gisborne each recorded five fewer sales and Southland three fewer sales in the three months to July 2012 compared to the three months to July 2011.  Compared to the three months ended June 2012 only Auckland and recorded an increase in sales.

“Grazing and finishing properties continues to attract the attention of buyers across the country, with sales of horticultural blocks showing an increase in Hawkes Bay and Marlborough,” says REINZ Rural Market Spokesman Brian Peacocke. 

“Given the seasonal workloads on farms at this time of year the number of sales has eased back, however, compared to this time last year the number of sales is more than 18% higher.  The fall in the REINZ Farm Price Index this month is not unexpected given the continuing uncertainties in Europe and recent falls in schedule prices.”

“There is increasing enquiry, both from local buyers and offshore buyers, for dairy properties which may lead to good support for this sector once spring gets underway.  There is also steady enquiry for quality sheep and beef properties.”

Grazing properties accounted for the largest number of sales with 53.4% share of all sales over the three months.  Finishing properties accounted for 19.9%, Dairy and Horticulture properties 8.1% each.  These four property types accounted for 89.5% of all sales during the three months ended July 2012.

For the three months ended July the median sales price per hectare for dairy farms was $22,679 (29 properties), compared to $27,919 for the three months ended June 2012 (47 properties), and $32,854 (41 properties) for the three months ended July 2011.  The median dairy farm size for the three months ended July 2012 was 119 hectares.

Included in sales for the month of July were two dairy farms at a median sale value of $11,424 per hectare.  The median farm size was 344.5 hectares with a range of 256 hectares in Gisborne to 433 hectares on the West Coast.  The median production per hectare across all dairy farms sold in July 2012 was 539 kgs of milk solids.

For the three months ended July 2012 the median sales price per hectare for finishing farms was $23,028 (71 properties), compared to $18,851 for the three months ended June 2012 (82 properties), and $12,050 (48 properties) for the three months ended July 2011.  The median finishing farm size for the three months ended July 2012 was 42 hectares.

For the three months ended July 2012 the median sales price per hectare for grazing farms was $13,023 (190 properties) compared to $13,025 for the three months ended June 2012 (205 properties), and $10,935 (156 properties) for the three months ended July 2011.  The median grazing farm size for the three months ended July 2012 was 75 hectares.

For the three months ended July 2012 the median sales price per hectare for horticulture farms was $130,000 (29 properties) compared to $130,208 (31 properties) for the three months ended June 2012, and $114,794 (18 properties) for the three months ended July 2011.  The median horticulture farm size for the three months ended July 2012 was 6 hectares.

Lifestyle Properties

The lifestyle property market saw a 10.8% increase in sales volume in the three months to July 2012 compared to July 2011.  1,514 sales were recorded in the three months to July 2012 compared to 1,367 sales in the three months to July 2011.  22 more sales were recorded compared to the three months to June 2012 (+1.5%); on a seasonally adjusted basis lifestyle sales rose by 0.7%. 

Seven regions recorded increases in sales compared to June while seven recorded decreases.  Auckland recorded the largest increase (+19 sales), followed by Waikato (+17 sales) and Manawatu/Wanganui (+10 sales).  Nelson recorded the largest fall in sales (-8 sales), followed by Wellington (-7 sales) and Southland (-5 sales).

The national median price for lifestyle blocks eased by $2,500 (-0.5%) from last month’s record high of $477,500 to $475,000 for the three months to July.  Compared to three months to July 2011 the median price also rose by $22,000 (+4.9%). 

The number of days to sell for lifestyle properties remained steady at 84 days for the three months ended July compared to the three months ended June.  Compared to the three months ended July 2011 the number of days to sell improved by nine days from 93 days to 84 days.  Canterbury and Gisborne both recorded the shortest number of days to sell in July at 56 days, while the West Coast recorded the longest number of days to sell at 199 days.

Commenting on the lifestyle property market statistics Brian Peacocke said, “The number of lifestyle properties sold compared to 12 months ago shows a healthy increase, although the rate of increase has slowed during the winter months.  Current low interest rates are providing some encouragement to buyers and the overall strength of the lifestyle market will be tested when spring gets underway.”

The chart below breaks the REINZ figures out into monthly farm sales:

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11 Comments

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Okay how much enquiry is from foreign buyers and about time every farm property in the process of being purchased by foreigners be made public, so we have the opportunity to get stuck into it, so that we longer have to be accused of xenophobia as with the Crafar farms.

Here is the bit we need to know:
Meanwhile, farm prices fell 3.1% in the three months to July from the three months to June, according to a new Farm Price Index produced by the REINZ created with help from the Reserve Bank of New Zealand. The index was 4.4% below where it was in July 2011, the REINZ said.
- Brian's spin aside.
 
What to make of rising credit growth. First cut we think the rising credit is further lending to existing farmers, rather than to new buyers, buying farms at higher values (as they are not).
 
If it is lending to existing farmers, we don't see that as a good sign given the really/very good payouts from seasons past, but not so good going forward...
 

Re that spin from Brian and Co:
A rising rate of enquiries for dairy farm sales suggests good support for the sector once spring gets underway, the Real Estate Institute of New Zealand says.
and:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1082...
The latest quarterly Rabobank rural confidence survey, completed in late June, showed a more modest deterioration in confidence among New Zealand farmers, on the back of a significant fall in the previous quarter.
 
It appears that Confidence is dropping at a lower rate...
 

No signs of wellness in Ozzz..
 

http://theland.farmonline.com.au/news/nationalrural/dairy/general/dairy-...

 

PENT up dairy industry fury about farmgate milk price cuts could see producers adopt the protest tactics of UK farmers who have barricaded milk factories and supermarkets across Britain.
A big surplus of drinking milk in NSW and southern Queensland has left farms who supply national processor, Lion, receiving payments of just 13 to 15 cents a litre for tier two milk - production that exceeds the company's contracted tier one volume needs for 2012-13.
Lion suppliers who deliver via the big Dairy Farmers Milk Co-operative (DFMC) have also had tier one production quotas reduced by 9 per cent for the coming season.
Last season they also copped tier one volume cuts of 19pc.
 
http://qcl.farmonline.com.au/news/state/dairy/general/qdo-backs-coles-da...
THE Queensland Dairyfarmers Organisation (QDO) has backed frustrated dairy farmers who protested against Coles' over its industry destroying $1/litre milk pricing strategy.
QDO president Brian Tessmann said 18 months after Coles slashed its store-brand milk to $1/litre, farmers have come together at the Royal Queensland Show (Ekka) in Brisbane to give the people of Brisbane the facts about the disastrous impacts of the so-called milk war.

 
http://theland.farmonline.com.au/news/state/dairy/general/milking-his-of...
A YEAR ago Steven Downes was expanding his family's 150 cow herd, planning to build a financial base for his future in farming - today he makes more money from just six hours of TAFE teaching than from the farm.
...........
Mr Downes said farmers were generally too scared to talk about Lion's big payment cuts and indifferent attitude to suppliers but he had few choices and wanted to highlight what was going wrong.
"Lion's 10-year contract with DFMC means the company can't walk away from its suppliers, but processors don't really want to you on their books unless your farm can handle a B-Double pick up," he said...
 

Yes - it's a comforting thought for those with the ability - especially so when the central banks are with you on the trade. Infinite riches are just a F12 key push away.  One can easily see why product manufacturing is withering away as a form of income and goods generation. Stupidly energy efficient as well - modern laptops work in tents near hotspots.  
 

What do UK and Oz dairy industry have in common - quotas and tier payments. NZ has neither as industry standard. Despite all it's failings, I'd still rather supply Fonterra here than a corporate.  Will be interesting to see what the NZ industry looks like in 10years time.

What does Fonterra and a competing corporate processor have in common? At the governance and managewment level, I'd say quite a bit, and given that privileged Fonterra shareholders have endorsed themselves to trade over 100 years of cooperative capital accumulation and evolution, I'd say philosophically there's little difference. As you know CO, I'm a shareholder, but also believe totally in true co-operative principles and ethos. Why? Because I would like my children to be able to earn a gainful living off this farm, and maintaining a healthy cooperative industry is the vital in that regard. Fonterra is shedding it's cooperative structure in favor of corporate. Where do you see things in ten years?

If Henry does the right thing and retire at the AGM, then I think Fonterra will be able to move forward - new beginnings and all that. I understand that John W has been spoken to by some Board members re the perception of his arrogance. Mind you he has to get elected again first which given the number of potential vacancies on the Board I believe he will, though not necessarily be the highest polling candidate. I'm inclined to ignore the SC candidate reviews - encumbents always do well, though I do think Nicola is worthy of a retaining her seat.
I'm with you on co-operative ethos - that's why I'd still rather be a Fonterra supplier than a corporate, despite TAF.  :-)
In ten years I see the Chinese have taken over the Fonterra farms (maybe 15years max).  I  believe that it will be another 'Sanlu' and end in tears. But for now the game has to be played. TAF will be proven to have been a trojan horse and suppliers will realise that it wasn't the nirvana for financial problems for those that thought it will be.  Let's face it - being able to sell only a third of your shares is unlikely to get anyone out of serious dodo
I think we are going to see some significant changes driven by industry participants, over the next 10 years. Large farms broken up in to smaller units, or multiple sheds put on these farms to milk say a max of 5-600cows. Irrigation reduced where it is coming from underground aquifiers, irrigation, where it is used will be via water storage, reduced stocking rates closer to 2.6/7 cows/ha, pk being a feed of the past. A return to true 'grass farming' methods.
In ten years time we will either be on the brink of, or involved in a modern day WWIII.
Now for the good news - never underestimate the human spirit (something pdk et al 'don't get'). There will be a dairy industry maybe not as we know it, but I do believe that there will always be cooperatives in some form or shape. Don't look back, look forward.
History shows us people only take so much crap before they rise up against it. It will happen again, if not in the next 10 years, in the next 15years. Teach your children resilience and adaptability and they will be able to cope with changes.
My dad is in his 90's (first generation kiwi). He's seen farming go from separating cream on farm and taking it to the factory in a horse and cart to technology now being commonplace on farms. He's also seen huge changes from small, numerous co-ops to the formation of Fonterra. He remembers growing up during the 1930's depression and WWII, his father losing half his farm because they weren't able to meet interest payments (funny thing is my grandfather always said it was a bank 'jackup' as it was the bank managers mate who ended up buying the half that got sold. Somethings never change!)  farming without subsidies etc. Through it all the human spirit has endured and ensured the survival of the dairy industry.  It will do so again.

Nice reply CO, thanks for your efforts. I agree with your sentiments, and see sense in the one that I'm struggling with, that is move foward with TAF, and accept John Wilson as a competent chairman.  I don't know much about his personality, but his determination to push foward with demutualising Fonterra based on debatable Nuffield scholarship and by putting corporate ahead of time honored cooperative principles, I must say I'm not inspired, despite the corporate rehtoric flowing from directors mouths. However I take comfort from your faith in the human spirit, and hope that farmers may unify again to maximise the value returned of what we produce.
I was amused when Colin Armer resigned from the board, and was found to be attending a Rabobank conference when asked for comment, given that's where Henry is feathering his nest post Fonterra. Have you read Haley Monayhans latest Rabobank report? It paints a more subdued picture on the outlook for dairy in NZ, than recent 'dawn of a golden era' stuff.

Yes, agree with your thinking at the farm level.
The bit we don't have an answer for is what hppens to the debt on the properties that have to give back production/production plans (marginal land/use too much-wrong source of water/high cost system). We do not see banks taking a write-off (or being generous other than their advertising).
Is inflation going to make the debt go away?
 
We have local example of ppl on water where the loan is greater than the market price, but income has been enough to pay the interest bill (but not this year coming).
We ran through numbers with them, production is not to district averages (but given property constraints not doing poorly). They are currently playing cat and mouse with the bank.
 

Yes you are right. And also we are not selling into a domestic market where the supermarkets and corporate processors can effectively put book ends around us.
 
In Oz, the corporate processors (for example international drinks coy's) enable the supermarkets to corner the largish domestic market. So Coles/Wollies say $2 milk, the corporate processor thinks well provided I get through put on my plant and some margin (I can maintain my relationship with the supermarkets cause of our other product lines) then its the Oz Farmer (many who through co-ops have long term supply (variable price) agreements with the drinks company processor) gets hammered and makes no margin.....
 
So add (with commodity volumes market) to the farmer owned co-op, being able to take international/export prices (i.e. not being driven into a domestic market where the supermarket and corporate is king).
Then add again the farmer co-op owned brands as well.....
Then add the benefit of the farmer owned co-op being able to act like the corporate processor in countries other than NZ.
 
We (as you can guess) have no idea why others would want to sell/give others (other than farmers) control or influence over fonterra....
- unless the bank is pushing to sell shares from under them, gets back to the debt problem and the way some mad cap borrowers have played into the hands of the banks, and opned a back door to corporates/other to gain greater influence on fonterra.....
 
Look at synlait, it see that corporates can gear up just like the mcb above. See bright seems have no interest in buying farms (factory means they have no need to). They are not driven to pay any price above fonterra it seems (can pay less), and seem not need to be positioning themslves to pay any substantially higher price at least (where is the $80/$90 per can going ?).
 
Thats the big picture we see...