Dairy farm prices drop by 20 per cent in a month

Dairy farms are suffering multimillion-dollar price drops and prices fell by 20 per cent in the past month alone, latest figures show.

Real Estate Institute figures out yesterday showed the median dairy farm price plunged from $3.75 million in May to $3 million last month.

Dairy farms were fetching a median $4,025,000 last June. Dairy farms remain the country's most valuable rural property type. Forestry land fetched a median $136,000, lifestyle $421,000 and horticulture $794,000.

The national median price for sales last month was $1.1 million, well down on last June's $1.8 million median.

Farms in the Auckland area remain the most expensive at a median $690,000 compared with the cheapest in Otago at $285,000.

The institute said 55 dairy farms were sold in New Zealand last month but rural spokesman Peter McDonald said he was concerned about lack of sales in many areas, particularly Southland.

Farm prices were closely linked to Fonterra's prices, McDonald said.

"The Fonterra payout is a pretty good barometer of where we can expect the rural real estate market to be. We've known for many months the market couldn't sustain the euphoria created by the massive Fonterra payout of 2008 and prices have settled back around 2007 figures," he said.

McDonald complained about the lack of volume, saying two years ago 655 properties were sold in the three months to June but in the same quarter this year just 285 farms changed hands.

"While this is consistent with the three-month period to May 2009, the drop is even greater when compared with the three months to June 2008 where the turnover was 711 farms," he said.

Farmers from the Waikato and Taranaki would traditionally head south for cheaper land but he noted fewer dairy conversions after the payout dropped back and said the trend to move south had also slowed considerably.

About $27.7 billion is loaned to New Zealand dairy farmers and of that about $8 billion was borrowed by dairy farmers in the past 12 months.

Fonterra is forecasting a $4.55 payout per kg of milksolids.

Stuart Locke, associate professor at the University of Waikato Management School, has forecast that dairy land prices will drop by 15 to 30 per cent during the next three years.

He based his forecast on his belief that milksolids prices would not recover in the short-term and said that meant farmers could not sustain the land values which were so high last year.