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No farm ‘fire-sale’ scenario from lower milk payouts

No farm ‘fire-sale’ scenario from lower milk payouts says real estate industry leader

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.

ends

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