Dairy market momentum shift

From Peter Newbold, General Manager, PGG Wrightson Real Estate

Two key indicators suggest a long-awaited shift in the momentum of the dairy property market is about to arrive.

First, the Reserve Bank Governor’s decision to lower the Official Cash Rate is expected to boost sentiment, fostering increased optimism in the sector.

Second, the 50-cent rise in Fonterra’s payout prediction, taking projected earnings to 25 per cent above where they were this time last year, should further reinforce confidence.

In the last several months the attitude of farmers has been poised to change. Those considering selling property have become more realistic, while purchasers take stock of the increasing variety of farms available. As spring progresses, more farmers are ready to list dairy property for sale.

In most of the prominent dairy regions, the conditions for this upswing are becoming evident.

A series of well-presented dairy farms around Te Awamutu will be offered to the spring market. As in some other regions, vendors are listing to sell early, seeking to test the depth of the buyer pool.

Pictured: A 140.24-hectare dairy farm at 170 Whirinaki Road, Galatea

In Eastern Bay of Plenty, immediate opportunities include good first farm or investment properties, with more dairy properties likely to come forward later in the spring and through the summer. Well qualified and motivated buyers, either investors or existing farmers enhancing dairy portfolios, are looking for properties with scale, proven productivity and longevity of environmental and resource consent compliance.

Pictured: 'Looker Farm' Tier 1 Productive Dairy Unit - 265ha, located at 499 Rolleston Road, Clandeboye

In Canterbury the present market comprises established dairy farmers looking to upscale, and farmers active in other sectors keen to expand into dairy. Tier One dairy farms are attracting the greatest enthusiasm. Purchasers are prepared to pay for quality and therefore avoid inheriting environmental problems. Well qualified buyers seek farms of 200 hectares plus, milking 800 or more cows. Prices for Canterbury dairy farms should remain fully firm, or possibly increase slightly.

Dairy support properties are likely to be an important part of the upcoming Mid and South Canterbury rural market. Although budgets rarely justify dairy farmers owning their own support blocks, taking control of stock health and ensuring a fully self-contained system is strong motivation. As the market returns to a more positive phase, dairy farmers will seek out these blocks. Several in Mid and South Canterbury will come to the market over the next few months, where ready buyers are likely to await.

Pictured: Barnego Farm a 251.4-hectare dairy farm at 1215 Hillend Road, Hillend

A number of Otago dairy units and runoffs are coming to the spring market, ranging in size and varying from Tier One through to Tier Three. With returns rising while interest rates and some on-farm costs come back, investors are returning to the sector, focused on properties with reasonable infrastructure, consents and compliance in order, and offering good return on investment.

Pictured: Northern Southland 379.1-hectare dairy farm with scale located at 20 Longridge Village Road, Kingston Crossing

Good Southland Tier One dairy farms currently range in value from $38,000 to $45,000 per hectare, Tier Two from $32,000 to $38,000, and Tier Three from $22,000 to $30,000. Southland dairy properties valued at $6 to $8 million and above are attracting more attention than in recent seasons. Current listings range from 450 to 650 cows. Southland enjoyed a surplus of feed in the last 18 months, freeing farmers from the need to secure their own grazing. Since that surplus is now exhausted, dairy support properties are again attracting strong interest.

In this environment, before bringing a dairy farm to market, anyone with such a property to sell must ensure it is in top condition and can be proved as such. Buyers are standing by, though will not neglect due diligence.

Rising sentiment and falling interest rates don’t always guarantee higher property values. However, these conditions will increase confidence among buyers in the dairy sector, and therefore increase the opportunity to sell.

Looking ahead, if interest rates continue to drop and the payout remains steady or increases further, the property market stands to gain. Many farmers are eager to expand their dairy operations with additional support blocks, while others seek first farms or properties to add to a dairy portfolio. Investors have also regained appetite for the sector. As more dairy properties enter the market, an increase in transactions is likely.