Dairy farm sales drop 29% as tighter lending conditions weigh

Overall sales fell to 261 from 322 in 2019. Photo / Brett Phibbs

Dairy farm sales slumped by almost a third over the past year as farmers contended with an uncertain market and tighter lending conditions.

That contributed to an overall decline of 13.9 per cent in rural property transfers across the country to a total of 1,154 farms in the 12 months ended June 30.

Data from the Real Estate Institute of New Zealand showed dairy farm sales fell by 29 per cent, grazing farms sold dropped by 19.2 per cent and finishing farm sales were down 21.9 per cent. Meanwhile, 7.7 per cent more arable farms were sold over the past 12 months.

For the past quarter alone, overall sales fell to 261 from 322 during the comparable quarter in 2019, while the institute's all farm price index sank by 10.1 per cent on an annualised basis.

That index, which adjusts for the differences in farm size, location and farming, type, was down 3 per cent compared to the prior three months to May 2020, indicating that the results were not specific to the covid-19 response.

The median price per hectare for the quarter, at $23,136 across all farm types, was slightly less than that achieved to May 2020.

According to institute numbers, only four of the country's 14 regions - West Coast, Auckland, Taranaki and Wellington - recorded year-on-year increases in the number of farm sales for the June 2020 quarter.

The milk belt of Waikato recorded the most substantial decline in sales, with 20 less farms changing hands, followed by Manawatu/Wanganui which was down by 13 sales for the quarter.

Institute rural spokesperson Brian Peacocke, said the three-month sales volumes reflected a "continuation of an emerging trend", begging the question as to whether numbers will now stabilise or whether the trend is longer term.

New blood needed

Suggesting that a "youthful rejuvenation of the farm ownership structure" was needed, he said it could be that an "avalanche" of potential sales is building behind an earthen dam.

"Should the dam burst, what is the likely impact on farm values – will values increase, stabilise or decrease?"

Peacocke said irrespective of the outcome, "what is clear is that the current average return on investment for those with investment in the rural sector will need to improve or there will be a decreasing incentive for attracting much needed, affordable capital into the agricultural sector."

He said on the other side of the coin, the horticultural industry was reflecting buoyancy, beef and lamb prices remained solid in spite of seasonal volatility, and the dairy industry has received a "welcome shot in the arm" from the most recent dairy trade auction.

However, he said the deer industry, and venison in particular, "sits in uncertain territory with covid-19 issues causing restaurants in Europe and other countries to cease ordering the product.

Broken down by farm type, grazing and finishing farms accounted for the largest number of sales with a 28 per cent share each over the past three months, while horticulture accounted for 12 per cent and dairy came in at 9 per cent - accounting for about three quarters of the overall market on a combined basis.

Dairy doldrums

The median sale price for dairy farms, meanwhile, was down 0.8 per cent year-on-year for the quarter at $24,822 from $25,028, on a median farm size of 115 hectares for the quarter - reflecting an average sales price of $31.99 per kilogram of milk solids for the quarter.

The median price achieved for finishing farms, meanwhile, fell 2.5 per cent to $30,158 per hectare, and was down from $30,920 per hectare for the past quarter, with farm sizes averaging about 35 hectares.

Median prices for grazing farms, at an average size of 132 hectares, dipped 12.1 per cent to $9,568 per hectare over the past three months, compared to $10,881 per hectare for the same period in 2019.

Median prices of smaller horticulture farms, at an average size of 8 hectares, also dropped by 19.5 per cent for the quarter, to $211,172 per hectare, from $262,490 per hectare for the quarter.