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Sales Slump in the Dairy Sector

Sales Slump in the Dairy Sector


Data released today by the Real Estate Institute of New Zealand (REINZ) shows there were 54 less farm sales (-16.1%) for the three months ended November 2019 than for the three months ended November 2018. Overall, there were 282 farm sales in the three months ended November 2019, compared to 260 farm sales for the three months ended October 2019 (+8.5%), and 336 farm sales for the three months ended November 2018. 1,295 farms were sold in the year to November 2019, 12.8% fewer than were sold in the year to November 2018, with 44.4% less Dairy farms, 1.6% less Grazing farms, 23.4% less Finishing farms and the same number of Arable farms sold over the same period.

The median price per hectare for all farms sold in the three months to November 2019 was $25,190 compared to $30,411 recorded for three months ended November 2018 (-17.2%). The median price per hectare decreased 1.7% compared to October 2019.

The REINZ All Farm Price Index rose 1.3% in the three months to November 2019 compared to the three months to October 2019. Compared to the three months ending November 2018 the REINZ All Farm Price Index fell 1.4%. The REINZ All Farm Price Index adjusts for differences in farm size, location and farming type, unlike the median price per hectare, which does not adjust for these factors.

Five of the 14 regions recorded an increase in the number of farm sales for the three months ended November 2019 compared to the three months ended November 2018 with the most notable being Canterbury (+13) and West Coast (+5). Waikato recorded the most substantial decline in sales (-31 sales) followed by Northland (-12 sales). Compared to the three months ended October 2019, ten regions recorded an increase in sales with the biggest increase being in Waikato (+8), Auckland (+7 sales) and Hawke’s Bay (+7 sales).

Brian Peacocke, Rural Spokesman, at REINZ says: “Sales data for the 3 month period ending November 2019 confirms a slight increase in volumes compared to the recent October period, but significant reduction in volumes for the same period in 2018 (-16%) and in 2017 (-11%).


“The standout feature in those numbers relates to the dairy category, which is down 55% on the equivalent period in 2018, and 83% on the 2017 figures.


“Given the improving forecasts in payout for the dairy industry, an exceptionally kind winter and a benevolent spring in most dairy regions, the reasons appear to be three fold: -


- firstly, the inexorable advances in compliance regulations and costs

-
- secondly, the Achilles heel for the dairy industry – the availability and quality of labour
-
- thirdly, and most significantly, the tightening of credit in the banking sector and the apparently acknowledged directive from within the Australian owned banks to dramatically reduce their exposure to the dairy industry
-
-
“In the internal allocation battle to secure funds for lending to clients, it is reported that in comparison to the capital-demanding, lower yielding agriculture sector, greater returns for the banks can be generated from increased investment in the residential and commercial sectors, hence the downward pressure on the availability of funds for the agriculture sector, exacerbated by the Reserve Bank requirement to increase capital reserves.


“In the meantime, record prices continue to be generated for output from the beef, lamb, mutton, venison and horticulture sectors which have also benefitted from a great spring. Accordingly, demand for such properties remains strong.


“Contrary to such logic, it is only the cautious dairy sector that is currently struggling in terms of sales, land values and demand, with a bare 8 sales of dairy farms throughout New Zealand for the month of November 2019, compared to 30 in November 2018 and 36 in November 2017,” he concludes.


Points of Interest around New Zealand include:

Northland/Auckland - hard work in the dairy arena; good activity in the Auckland region and good prices for quality finishing properties; good results on grazing blocks in Northland but limited success on finishing units


Waikato/King Country/Taupo - constrained dairy results in spite of strong availability, with 2 sales only for the region, one being a large dairy/kiwifruit property in the Te Awamutu district; strong enquiry and a good level of sales at very good prices in the finishing/dairy support/ beef category, particularly in the Otorohanga and Te Kuiti districts


Bay of Plenty/Rotorua - one significant dairy farm sale destined for the horticultural sector plus a strong sale of a drystock/kiwifruit mixed property; reasonably subdued in the horticultural sector


Gisborne/Hawke’s Bay - quiet in the Gisborne pastoral sector but several solid sales of arable properties; good activity on finishing blocks at healthy prices in Hawke’s Bay coupled with reasonable results for arable and grazing properties; results pending in the forestry sector


Wairarapa/Wellington - very quiet in the Wairarapa – 2 sales only within the finishing and grazing categories


Nelson/Marlborough - surprisingly quiet throughout the north of the South Island with light activity in the grazing sector only, and one small forestry sale


Canterbury/West Coast - zero sales in the dairy sector, as has been the case for the last 3 months, reflecting a trend over the last 2 years; constrained results in the grazing and finishing sectors after a strong month in October


Otago - a good level of sales at solid prices for finishing and grazing units, particularly in the Dunedin and Cluther districts; light on arable and horticulture and nil on dairy


Southland - still hard work in the dairy sector but steady results at good prices in the drystock category, particularly so for finishing properties where some very good outcomes were achieved.


Grazing farms accounted for the largest number of sales with a 33% share of all sales over the three months to November 2019, Finishing farms accounted for 28%, Horticulture accounted for 13%, and Arable properties accounted for 12% of all sales. These four property types accounted for 86% of all sales during the three months ended November 2019.


Dairy Farms

For the three months ended November 2019, the median sales price per hectare for dairy farms was $39,678 (16 properties), compared to $41,204 (11 properties) for the three months ended October 2019, and $50,964 (36 properties) for the three months ended November 2018. The median price per hectare for dairy farms has decreased 22.1% over the past 12 months. The median dairy farm size for the three months ended November 2019 was 104 hectares.

On a price per kilo of milk solids basis the median sales price was $51.18 per kg of milk solids for the three months ended November 2019, compared to $44.71 per kg of milk solids for the three months ended October 2019 (+14.5%), and $43.57 per kg of milk solids for the three months ended November 2018 (+17.5%).

The REINZ Dairy Farm Price Index fell 0.6% in the three months to November 2019 compared to the three months to October 2019. Compared to November 2018, the REINZ Dairy Farm Price Index rose 25.0%. The REINZ Dairy Farm Price Index adjusts for differences in farm size and location compared to the median price per hectare, which does not adjust for these factors.

Finishing Farms

For the three months ended November 2019, the median sale price per hectare for finishing farms was $33,178 (72 properties), compared to $34,553 (62 properties) for the three months ended October 2019, and $32,635 (112 properties) for the three months ended November 2018. The median price per hectare for finishing farms has risen 1.7% over the past 12 months. The median finishing farm size for the three months ended November 2019 was 39 hectares.

Grazing Farms

For the three months ended November 2019, the median sales price per hectare for grazing farms was $10,410 (86 properties), compared to $10,410 (86 properties) for the three months ended October 2019 and $11,835 (93 properties) for the three months ended November 2018. The median price per hectare for grazing farms has fallen 12.0% over the past 12 months. The median grazing farm size for the three months ended November 2019 was 106 hectares.

Horticulture Farms

For the three months ended November 2019, the median sales price per hectare for horticulture farms was $213,890 (35 properties), compared to $216,383 (44 properties) for the three months ended October 2019 and $196,142 (50 properties) for the three months ended November 2018. The median price per hectare for horticulture farms has risen 9.0% over the past 12 months. The median horticulture farm size for the three months ended November 2019 was 8 hectares.


ENDS


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