Why the dairy farm market could be in for a puff of wind

Market doldrums have frustrated older dairy farmers without succession plans. Photo / Supplied

Financially-solid dairy farmers who aren't dependent on the bank to buy more land and sellers who've ditched their price dreaming may together start to lead the dairying property market out of the wilderness this year.

Real Estate Institute rural commentator Brian Peacocke has a sense a market adjustment is around the corner in this moribund property sector, saying "there are signs we may be coming out of the bottom of the dairy job I hope".

He bases this on some selling and buying activity just before Christmas and on signs that property prices are "backing off".

"I think there will be a market adjustment and those who want to do business will do so, hopefully. There are a number of people who are quite solid financially and don't need to lean on a bank, in which case if the right opportunity comes to light they may not need a bank to make the purchase.

"We are seeing a little of that as prices are backing off."

Robust milk payouts, a kind winter and benign spring had proved no match for the depressive market influences of environmental compliance costs on farmers, scarce labour quality and availability, and most significantly, the decision by the Australian banks to reduce their lending exposure to dairying, Peacocke said.

His rural market report last month said dairy sales around the country in the three months to end November were 55 per cent down on the same period in 2018, and 83 per cent down on the 2017 equivalent.

Only the dairy sector was struggling in terms of sales, land values and demand, with just eight farm sales throughout the country in November, compared to 30 in November 2018 and 36 in that month in 2017.

Peacocke said the biggest contributor was the position taken by the banks in their internal allocation battles to secure funds for lending, exacerbated by the Reserve Bank requirement on them to increase their capital reserves.

"But not all banks, there is a clear tiering of banks. (But) within the Aussie-owned banks the message we are getting is they believe agriculture is capital hungry and (gives) low returns as opposed to investing funds in residential and commercial...

"They have a short memory as to where a lot of their benefits and profits came from in earlier years."

Peacocke said the market doldrums have frustrated older dairy farmers without succession plans who want to quit.

"There's been a lot of frustration that they haven't been able to sell. These are probably bigger-type properties with bigger money involved so the expectations for prices are possibly a bit ahead of where the market is prepared to go at the moment.

"Apart from that, we have farmers prepared to buy but banks won't extend their lending without them selling something else in advance. It's stymying the whole process."

In dairying heartland Waikato there were some successful sales of smaller, 70 to 100 hectare, dairy farms before Christmas, Peacocke said.

In this region in November there were only two dairy farm sales with plenty on the market.
However, there had been strong demand and good sales of properties for finishing livestock, dairy support and beef, particularly in Otorohanga and Te Kuiti.

In dairying heartland Waikato there were some successful sales of smaller dairy farms before Christmas. Photo / Supplied

But Peacocke still classified the Waikato market as "constrained and reasonably flat" and said unless sellers were "prepared to recognise the change in the market and price accordingly" it could remain so.

In Canterbury and Southland where there had been big dairying expansion and the farms and dollars involved were bigger, market activity was being hampered by changes to Overseas Investment Office regulations, which favoured forestry investment by foreigners over pastoral.