Instability leads to tight grip on farms

The dairy industry is shrouded in uncertainty.

Uncertainty in the dairy industry is beginning to catch up with the rural property market with another drop in farm sales.

It has been a grim month for dairy farmers after milk product prices dropped to the lowest level since 2009 in last month's Global Dairy Trade auction.

Fonterra also announced it was slashing 523 staff to try to stay profitable in the current market.

Dairy farmers are left wondering if the forecast payout of $4.40 a kilogram of milk solids for the 2015 season, and $5.25 for the next season, will hold.

Commentators are predicting farmers will be holding on to assets during the downturn -- including good dairy properties. If owners are not going to get the price they want, they won't be selling.

This is reflected in the latest data released by the Real Estate Institute of NZ which shows there were 62 fewer farm sales -- an 11.5 per cent drop -- for the three months ending June compared to the three months ending June 2014.

The number of dairy farms for sale in particular dropped, from 64 in the three months to June compared to 87 in the three months to May and 69 in the three months to June last year.

The REINZ Dairy Farm Index fell 5.5 per cent in the three months to June compared to the three months to May.

However, while the number of farms on the market dropped, prices have remained steady.

The median sales price per hectare for dairy farms was $35,531 for the three months from April to June compared to $35,281 for the three months ending in May. Prices were also up from $33,543 for April to June 2014.

The median dairy farm size for the three months ending June was 110ha and the median production per hectare across all dairy farms sold in June was 767kg of milk solids.

REINZ Rural Spokesman Brian Peacocke said that the rural market continued to maintain reasonable momentum as farmers grappled with the volatile mix of winter conditions and tighter cash flows.

He said the level of the New Zealand dollar and the outlook for interest rates were two of the brighter spots on the horizon for farmers.

Three regions recorded increases in sales volume for the three months ending June compared to the three months ending June 2014. Auckland recorded the largest increase in sales -- up 19 sales, followed by Bay of Plenty and Wellington.

The biggest lift was again in the lifestyle property market, which saw a 32.5 per cent increase in sales compared to June last year. The year to June also saw the value of sales break through the $5 billion mark for the first time, with sales of $5.041 billion in the 12 months to June.

"The lifestyle market continues to go from strength to strength in the most heavily populated regions, with record volumes of sales, higher demand placing pressure on prices, and the resulting clearance of longer-held stock at very strong values," Peacocke said.