KEY POINTS:
The median price paid for dairy farms may have slipped in recent months but the price paid per kilogram of milksolids is at a record high, according to the Real Estate Institute of New Zealand.
Statistics from REINZ show the median sales price for a dairy farm in
the three months to March was $4.06 million, down from $4.14 million in February and a record high in January of $4.25 million.
However, REINZ national councillor and rural spokesman Peter McDonald says the median could be affected by the sale of smaller farms, while the national average price per hectare for dairy farms sold was $43,645 - equivalent to a record $50 per kilogram of milksolids.
The demand for dairy farms is still strong and prices are still trending upwards, albeit at a slower rate, McDonald says.
"They [prices] have slowed somewhat ... and now they've sort of stabilised a little but they're certainly not trending down at all."
The value of dairy farms depended on the payout to farmers from Fonterra. The dairy co-operative is forecasting $7.30 a kilogram of milksolids for the season, compared with $4.46 the previous season.
"Providing the payout stays where it is and moves in the right direction farm values will stay there and continue to increase," McDonald says. "At the moment the prospects look good. There's a lot of confidence out there."
Total farm sales of 717 in the three months to March were up 36 per cent on the previous year, with a national median price of $1.69 million, down from $1.75 million in February but considerably higher than $1.2 million in March 2007.
However, the market for sheep and beef farms is very depressed, McDonald says.
"If it's a dry stock farm and it has the ability to provide dairy grazing or grow supplements for dairy farms then it has an ability to create more cash flow so they are selling quite well as dairy support blocks," he says. "But if it's a genuine sheep and beef farm ... they are finding it very difficult at the moment."
Some farmers working on properties which have been in the family for generations are calling it a day.
"That family have decided, well they've been farming it without a profit for too long and they're not going to hang in there," McDonald says.
Rabobank New Zealand executive manager Hamish Midgley says dairy farm prices are moving up in unison with the rising payout, although most people in the dairy industry don't expect it to remain above $7 a kilogram of milksolids.
"Most of them are taking a more cautious approach for the medium to long term but in saying that I think everyone, including us, is in agreement that there has been a paradigm shift up in the dairy payout," Midgley says.
Rabobank is expecting a payout of probably $6 or more next year and somewhere around $5.20 long term, although there is going to be more volatility.
Fertiliser, fuel and interest rate costs had gone up and there was not much likelihood of electricity costs coming down. "So if we get wild fluctuations in payout that's where there will be some profitability squeeze, it will be on the cost line," Midgley says.
Sheep and beef farm prices had probably got a little bit carried away in some areas three years ago after five good years up until 2004/05, with good climatic conditions and low interest rates, but they were coming back to levels more aligned with the economic returns, Midgley says.
"So we have this real dichotomy of pricing where at best sheep and beef properties are holding if not retracting in some areas but the volume of sales has just really gone down as people sort of are in a bit of a wait-and-see mode I think more than anything else."
* Official sales figures will be boosted later this year by the weekend announcement of the sale of a King Country property for $32.5 million, believed by PGG Wrightson Real Estate to be a record price.
The 3139ha Waipa Valley sheep and beef farm has been bought by a consortium of investors who have purchased the farm with the intention of using it for dairy support.
FEED ME
Kiwi feed manufacturers have had a record year fuelled by demand for supplementary feed from the dairy industry.
The New Zealand Feed Manufacturers Association says total compound feed production by its members increased by 47,597 tonnes in 2007 - the largest annual rise since 2003 - to a total of 877,021 tonnes.
The association says it covers about 85 per cent of the feed industry.
Executive director Michael Brooks says increased demand for dairy feed was among the main reasons for the rising feed demand in a sector which has been predominantly based on poultry and pigs.
"The feature I guess last year was that surge in the ruminants in the dairy industry which we just hadn't seen before," Brooks says.
"The relatively high dairy commodity prices and increased payouts to dairy producers mean that using a complete feed as part of the production system, rather than just relying on pasture or forages alone, is a more attractive and highly effective way for farmers to increase their overall returns."
The drought may have had an impact "but this was something we noticed across the whole year, so you are starting to see a trend towards feed as a supplement".
Internationally the cost of grain and commodities used in feed has risen during the previous year because of increased grain demand for the biofuel industry and less availability because of drought in the US, China and Australia.
"It's inevitable that feed manufacturers have also had to increase the cost of complete feed to livestock producers," Brooks says.
More than 60 per cent of the material used in feed production by its members was sourced locally, including 152,240 tonnes of wheat, 122,009 tonnes of barley and 92,757 tonnes of maize - about half the national production.
"While we have a lot of local sourcing of grain products ... our local product meets the world market demand of course so if it goes up around the world ... the New Zealand price rises as well."
The price of feed in some cases might be up by between about 30-40 per cent during the last year, Brooks says, and the cost is working its way through to the consumer.
"You've seen the prices of such as poultry is up to 27 per cent [increase] over the last year at the retail outlets."
However, the industry is continually looking at ways to minimise the impact of increased grain costs, he says. Forward purchasing contracts, least-cost programming in formulations and examining product specifications were among the options to control costs.
"There had been a hope of [international prices] flattening out but the ... betting seems to be more on the prospect that it'll be, if anything, rising."
FORAGE PROJECT
Scientists at Crop & Food Research are at the forefront of a project to tackle poverty and raise incomes among farming communities in Nepal.
The three-year project will cost about $900,000 and is getting just under $600,000 of support from the Government's international aid and development agency, NZAID.
The project includes 300 Nepalese farmers and aims to reduce the significant time spent by some women gathering and transporting fodder to livestock, improve milk yields by enabling farmers to produce their own higher quality fodder and provide more time which can be used for other income-generating activities.
The job of collecting forage from common land can take all day, while inadequate availability in winter and spring results in poor nutrition and milk productivity.
Project leader in New Zealand Keith Armstrong says livestock contribute significantly to farm income through milk production, food and as power for cultivation.
"If we can ensure that the animals are fitter through provision of high-quality fodder, as well as reducing the need for women to go out and gather the fodder, often over large distances, then we can expect to see significant improvements in the overall wellbeing of these rural communities."
Crop & Food Research has developed excellent oat varieties that can be grown in the Himalayan regions during winter when the need for fodder is greatest, he says.
The Nepal Agricultural Research Council and Department of Livestock Services will also provide funding and oversee implementation of the project.
There is much to be learned from the project, Armstrong says. "So as a plant breeder there's a lot that I can learn from that project that I can apply to my breeding programme back here in New Zealand as a Crop & Food employee."
