Dairy boom times keep prices high

Soaring prices being paid for farmland in Otago, Southland and Mid Canterbury - up between 30 and 50 per cent in the past year - look set to continue climbing.

The booming dairy industry has also pushed up demand for electricity.

Industry leaders say the rate of increase has slowed, but it shows no sign of abating.

Southland prices, fuelled by the conversion of 51 sheep farms to dairying, have risen the sharpest, between 40 and 50 per cent in the past year, according to Invercargill valuer Hunter Milne, of Chadderton Valuation.

In Otago, which has less land suited to dairying than Southland, prices have risen more than 30 per cent in the past eight months.

Reid Farmers rural real estate manager Craig Bates said Otago land prices had risen about 5 per cent since January, as demand for all types of properties exceeded demand.

"As long as increased demand stays up there and weather conditions prevail, there is no reason to say there will be any change," he said.

Reid Farmers had handled 30 per cent more land sales in the past year than the previous 12 months, with demand for properties right across the province.

Farm returns for meat and dairy products have reached levels not seen for many years, with predictions those returns could remain healthy for the next year or so.

Mr Milne said an 80ha dairy farm at Edendale in Southland sold earlier this year for $21,571 a ha or $1.72 million including New Zealand Dairy Group shares, and another at Waianiwa, north-west of Invercargill, recently fetched $17,297 a ha.

Recent sales of sheep and beef units suitable for conversion were making $8600 to $9800 a ha.

Bankers and farm managers said they were not concerned at the inflating price of land provided buyers budgeted conservatively.

Rabobank Otago and Southland regional manager Jeffrey Morrison said that despite continued demand for land, the looming winter would slow demand as farmers prepared ewes for mating and then winter management.

He believed questions over the future ownership structure of the dairy industry, the slowing of the Australian and United States economies and the impact on markets of the foot-and-mouth outbreak in Britain could dampen land prices.

Westpac Trust Otago agribusiness manager Eddie Walter said dairy farm purchasers were budgeting on a payout of $3.80/kg of milksolids, even though projected payouts for the next two years were between $4.50 and $5.

It was the same for sheep and beef farmers, where revenue projections were favourable for the next two years, but debt gearing of bank loans was kept conservative.

Canterbury Real Estate Institute rural spokesman Paul Cunneen said while most new dairy farms were already set up for the coming season, there was still a lot of inquiry about Mid Canterbury properties.

The top figure for an established dairy unit was $22,320/ha. Mr Cunneen said there had been top range conversion properties selling for $8000/ha to $10,000/ha.

Prices, across the board, had been pushed up by the dairy demand.

Mr Cunneen said top dry land sold for $7400/ha with irrigated land breaking the $10,000/ha mark.

The average had previously been around $7400/ha for irrigated land, and $5900/ha for dry land. Mr Cunneen said a variety of factors affected land prices, including location, soils, and improvements.

Land prices had lifted by around 15 per cent across the board over the past 18 months, but the current drought could affect prices.

Electricity Ashburton general manager Gordon Guthrie said increases in rural power demands meant that in the financial year ending this month, the company had spent $7 million on upgrading lines to cope with extra demand.



Among the upgrade work carried out had been the introduction of a new sub-station in the Coldstream area, as well as a similar concept in Valetta.

He said other areas were proving "strong enough to cope" on the main distribution line at present.

Although 17 new dairy farms were connected in the district last year, Mr Guthrie said the additional demand for power came not from dairy sheds, but from irrigation pumps. Many farmers were installing irrigation to ensure pasture growth through the summer and autumn.

- NZPA