Lower dairying payouts will lead to a tightening of the proverbial belt around many Canterbury farm budgets - but not a rush to the mass selling of productive units, according to the head of a leading real estate agency in the region.
Bayleys Canterbury director Bill Whalan said the full impact of the latest lowered Fonterra payout forecast would depend on how long prices remained depressed - but any talk of ‘fire sale pricing’ was wide of the mark.
“A vast majority of Canterbury dairy farmers are in a position to deal with this season’s low payout - and therefore a rush of distressed farm sales is not anticipated,” Mr Whalan said.
“Looking ahead, a majority of banking and rural sector forecasters believe that dairy prices will begin to recover in the later part of 2015, and therefore payouts for the 2015/16 season will lift from current levels.
“It is likely however that those farmers carrying higher levels of debt in the short term may look to reposition their business by selling off surplus land or parts of farms. Many dairy farmers will have to continue to exercise caution with on-farm budgets.”
“While the $4.50 per kilogram of milk solids payout is not a scenario Canterbury’s dairying sector would like to see for any sustained period, the anecdotal commentary coming through to our sales teams out in the region is that farmers are in a far stronger operating position in 2015 than they were in the last down period of the cycle some five years ago.”
Mr Whalan said the disposal of surplus land holdings could provide an asset buffer to enable heavily-mortgaged farmers to navigate through the next year or so.
“Land values have held firm despite the downturn in commodity prices. This suggests that low interest rates and a reasonable longer-term outlook for dairying are supporting demand for farmland - despite the difficulties of the current season,” he said.
Rural land prices in the Canterbury region have surpassed their pre Global Financial Crisis highs according to latest results reported by the Real Estate Institute of New Zealand (REINZ).
The REINZ sales data for the three months ending March 2015 shows the median sales price of rural land had reached $31,826 per hectare - surpassing the previous high of $31,126 per hectare registered in the opening quarter of 2009.
Mr Whalan said that while values had now surpassed pre GFC levels, sales volumes had remained more subdued.
“The opening quarter of 2015 has seen a reduction in sales - no doubt reflecting the impact of lower dairy prices and the drought,” he said.
“Although still well ahead of the levels of activity experienced over the 2009 to 2011 period, the volume of sales remains behind those which were apparent leading up to the last cyclical peak reached in early 2008.
“While total sales volumes have declined, competition for well located, productive land remains strong - with multiple offers still common at the upper end of the quality scale. There is evidence however, that market interest in secondary quality units has waned in recent months.
“Within Canterbury’s dairying sector, the primary driver is access to a reliable water source - so land within irrigation zones is particularly attractive.”
Mr Whalan said Canterbury had undergone a monumental shift in rural production focus - moving from sheep to dairy farming over the past decade, and thereby establishing dairy as the foremost pastoral activity in the province. As a result, the province’s economy was more prone to any shifts in milk solid payout levels.
“Across New Zealand, sheep numbers have fallen to 29.8 million – a drop of three percent over the previous year. The decline was led by the Canterbury Region where sheep numbers fell by 255,000 - from 5.22 million to 4.97 million. The latest figures continue the trend apparent since 2010 when the total number of sheep stood at 5.65 million,” he said
“Over the same period, dairy’s expansion has continued. In 2010 total dairy cow numbers stood at 938,000. The latest statistics show this number to have increased to 1,333,000 - an increase of approximately 42 percent over four years.”