Values stay firm despite payout forecast

Farm values are holding up well.

Favourable growing conditions, strong prices for beef and the possibility of a dairy price recovery in the 2015-2016 season are helping maintain a healthy climate for farm sales with EMMA BUTT

Farm values are continuing to hold up well, with buyers remaining confident in the market, despite the lower forecast milk payments. And while the drop in payout will see dairy farmers tighten their belts it is not expected to lead to a rush of land for sale.

The continued confidence in the market is being put down to farmers taking a long-term view of the dairy industry, with some commentators expecting a turnaround next season.

Rabobank is maintaining its expectation of a dairy price recovery during the 2015-2016 season. Rabobank's director of dairy research for New Zealand and Asia, Hayley Moynihan, says market indicators are emerging which could lead to a reduced global dairy supply and ultimately a recovery in prices.

This view is flowing on to the rural property market, with interest in farms remaining high. Real Estate Institute figures show a price increase of nearly 17 per cent a hectare compared with prices the corresponding time last year.

Overall there were 485 farm sales in the three months to the end of April 2015 compared with 425 farm sales for the three months ending March 2015. The median price was $28,668 a hectare compared with $24,574 for the three months ending April 2014.

Dairy farms saw a price increase to $38,802 a hectare from $37,761 for the three months ending March 2015 and from $34,615 for the three months ending April 2014.

Real Estate Institute rural spokesman Brian Peacock said good properties were continuing to sell well across the whole sector, despite challenging conditions. "In contrast to the very topical discussions relating to the reduction in the dairy payout, beef prices remain strong, good properties continue to sell at values deemed fully firm, and large areas around the country are experiencing excellent autumn growing conditions," he said.

Commentators in the industry believe that most farmers are well equipped to deal with the payout drop, but any talk of "fire sale pricing" was wide of the mark.

Bayleys Canterbury director Bill Whalan said the full impact of the latest lowered Fonterra payout forecast would depend on how long prices remained depressed and while he expected farmers that are carrying higher levels of debt to sell surplus land or parts of farms, many dairy farmers will instead continue to exercise caution with on-farm budgets.

Whalan said the disposal of surplus land holdings could provide an asset buffer to enable heavily-mortgaged farmers to navigate through the next year or so.

"Land values have held firm despite the downturn in commodity prices. This suggests that low interest rates and a reasonable longer-term outlook for dairying are supporting demand for farmland -- despite the difficulties of the current season," he said.

A rush of distressed farm sales was not anticipated.

"Looking ahead, a majority of banking and rural sector forecasters believe that dairy prices will begin to recover in the later part of 2015, and therefore payouts for the 2015/16 season will lift from current levels."

In Canterbury rural land prices have surpassed their pre-global financial crisis highs and Waikato continues to have strong sales activity for dairy and grazing properties. Seven regions recorded increases in sales volume for the three months ended April 2015 compared with the three months ended April 2014. Auckland recorded the largest increase in sales, followed by the Bay of Plenty and Taranaki.