Sales rise as farmer confidence takes a tumble

Farm sales have taken off again – at a time when farmer confidence is falling.

The latest quarterly Rabobank Rural Confidence Survey conducted late last month found 44% of farmers expect the agricultural economy to worsen over the next 12 months compared to 36% in the previous quarter and 10% at the same time last year.

Just 15% expect economic conditions to improve.

The high New Zealand dollar and falling commodity prices were key reasons for their declining confidence, cited by 50% of the farmers who expected conditions to worsen.

Beef and sheep farmers had the lowest levels of confidence, dampened by the softer global lamb market after two seasons of strong prices. Dairy farmer sentiment lifted slightly from the mid-winter doldrums evident in the previous survey.

After rallying in the previous survey, confidence had declined again in the horticulture sector.

Meanwhile, the latest Real Estate Institute survey reports sales are up 5% year on year. The median price per hectare rose 2% over the past year. The institute says a shortage of listings is a serious constraint for buyers.

Bayleys research shows the expansion of the Canterbury dairy sector has been one of the primary drivers of land value growth in the region over the last two decades.

This has been achieved through large-scale conversion of farms from alternative uses, with a resultant increase in values.

Canterbury has become increasingly significant to dairying. In the 1998-99 season, the region accounted for just 3.7% of the total number of dairy herds in the country and 6.3% of the total dairying land area. By the end of the 2010-11 season, this had grown to 7.8% and 12.9%, respectively.

The majority of herds, 676, are located in North Canterbury region, while in South Canterbury there are 246.

Farm values are back at peak levels achieved in 2008.

The average sale price of dairy land in 2009-10 was just over $41,500 a hectare (shares inclusive). By the period ending June 2012 this had climbed to more than $47,000 While the average figure is similar to the 2008 peak, the range of sales values is much smaller.

In 2008, share inclusive farm sales achieved approximate values of between $37,000 and $56,000 a hectare. The 2011-12 range is between nearly $38,000 and $53,000, with the majority of the sales between $45,000 and $51,000.

“The tight range within which a majority of sales have occurred over the last two years illustrates the fact that a two speed market is currently operating,” Bayleys says. Farms within poorer locations such as the West Coast or with insufficient irrigation are attracting much less buyer interest.

This reflects a change in attitude by farmers and banks, which require a solid business case for the farm as opposed to relying on land values increasing to support borrowings, Bayleys says.

An analysis shows that a vast majority of dairy farm sales are for properties of between 75ha and 250ha. Since 2005, this sector of the market accounts for 72% of sales.

Bayleys researchers highlighted the significance of the proposed Central Plains Water scheme, recently given a $5 million funding lifeline from Selwyn District Council. Its promoters claim hundreds of millions of dollars worth of economic benefit.

Canterbury plant for Westland

Westland Milk Products has plans to build a three-dryer milk processing plant in Rolleston’s Izone Industrial Park.

This is the West Coast Dairy Co-operative’s first foray outside its home area and is expected to trigger a reaction from dairy giant Fonterra.

Westland will process raw milk into nutritional milk products such as infant formula and growing-up milk powders, for domestic and international market.

Fonterra is investing $500 million in a two-stage complex at Darfield, which will include the world’s largest 30 tonne an hour dryer.