Dairy farm sales subdued, but prices are holding up

Quiet market .... Few dairy farms in Canterbury are changing hands. File photo


It was the best of times, it was the worst of times.

Charles Dickens’ famous opening sentence in his famous novel, A Tale of Two Cities, could well sum up the state of the region’s dairy industry.

Market fundamentals appear sound and returns are strong, but factors have combined to subdue dairy farm sales.

The dairy farm market in North Canterbury is in the midst of interesting times, in what PGG Wrightson Canterbury and West Coast real estate manager Peter Crean describes as a “wait and see situation”.

“There is a reasonable number of dairy farms on the market at the moment, although we are seeing very few sales,” Mr Crean says.

“That said, when they do sell, they’re still fetching good prices.”

He believes a lack of foreign buyers in the market is part of the issue.

“That said, I don’t feel there’s enough evidence to point to a fall in dairy property values.

“What I actually think we’re looking at is a period of wait and see, with purchasers looking for indications of policy changes regarding nutrient levels, and others potentially returning to the market if the positive dairy output forecasts for increase continue.”

He says the market fundamentals remain sound and dairy returns are strong.

“These factors should see things picking up. The dairy payout predictions are good and, like the sharemarket, where there’s a positive global view, there are investors out there.”

A comprehensive Colliers International report released towards the end of last year showed that the Canterbury dairy market ended the 2017/18 season with 15 dairy farms sold for a total of $125 million, down from 16 farms sold for $126.9 million the year before.

At the time, Colliers commented that market sentiment appeared to be subdued due to limited liquidity, the threat of Mycoplasma bovis, the removal from the sector of international purchasers, the risk of further environmental regulations, and the performance of dairy giant Fonterra.

In particular, due to a tightening in Overseas Investment Office rules under the Labour Government, there was no foreign investment in Canterbury dairy farms in the 2017/18 season, in contrast to the 2013/14 season, when $171m was spent on them by international buyers.

Colliers suggested that the result of this might well be an increase in subdivision of properties worth more than $10 million, which are generally out of reach for most Kiwi buyers.

And, given Environment Canterbury benchmarks at the moment, Colliers said that dairy farms needed to show they can meet sustainable long-term production targets to be successful on the market.

These include soil type; secure, low-cost irrigation water; quality of irrigation; and farm infrastructure.

The potential imposition of nutrient limits may also affect the saleability of some dairy farms.

Colliers concluded that yields this season will continue to rise, as buyers require a greater return on capital to reflect the increased risk of farming, which will lead to softening prices.latest Running SneakersMen’s shoes