Wednesday, April 24, 2024

Dairy farm values firm despite fewer sales

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Compliant farms achieving higher sale prices.
The cutting-edge technology being used at the 1100-cow Glen Eyre farm is the result of a collaboration between Ravensdown and Lincoln University.
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Farms entering the real estate market are achieving a higher sale price provided the vendor shows the property has the appropriate environmental regulatory requirements in place, a new report says.

The report into the dairy property market by Colliers Rural Valuation says it has become apparent that farms entering the market with a well-defined and assured approach to land use consents, winter grazing areas, compliant effluent systems, dependable irrigation water sources and a grasp of nutrient responsibilities are achieving higher sale prices.

Colliers Rural Valuation associate director Luke van den Broek said having these regulatory requirements in place provides a clear indicator to the market that the property can sustain its current farming practices well into the future, providing potential buyers with certainty.

“Whilst the market is less active due to the present economic environment, the sector is supported by strong market fundamentals and a good domestic buyer pool. 

“Our analysis indicates that the values of well-located, environmentally compliant dairy farms with good quality infrastructure are likely to remain resilient, even in the face of a period of impeded cashflow.”

The report says that while sale volumes have slowed through 2022-2023, sale prices appear to be holding at levels comparable with the end of the 2021-2022 dairy season. 

The dairy season just finished represents a return to a more normal selling season, following an extraordinarily active season the year before.

In Waikato, the market for dairy farms, like elsewhere throughout New Zealand, experienced a decline in the total number of sales. However, up until this point value levels have held reasonably firm.

The reduction in sale volumes also indicates that the market has reached a point where vendors and purchasers are not in alignment with their pricing expectations, the report says.

“Many Waikato dairy farms have aging infrastructure requiring significant capital expenditure to bring them up to standard and in recent seasons this has factored in the prices realised. 

“As the market slows and the number of sellers outweighs purchasers, properties requiring further investment are likely to sell at increasing discounts with both the capital expenditure requirement and an allowance for profit and risk factored into the price that buyers are willing to offer.”

The Waikato dairy farm market also suffers from a lack of younger farmers with the appetite and ability to transition from managing and sharemilking into farm ownership, it says.

In Canterbury and North Otago, the market for dairy farms appears to be at an inflection point. Demand is weakening and vendors are still hopeful of last season’s strong prices, likely to result in a decrease in total sales volumes.

“We anticipate that where farms do sell, the reduced competition between purchasers will lead to a gentle easing of prices. As dairy farms tend to only settle at the end of the milking season, it is the milk price expectation for the 2024-2025 season and beyond which is most likely to influence long-term buying decisions. 

“Good quality farms with a secure physical resource base including reliable irrigation water and environmental compliance and quality improvements are likely to hold their value levels more so than farms where one or more areas require further capital investment and improvement or create uncertainty in the mind of the purchaser,” the report says.

The market for dairy support blocks has also eased in these two regions, having jumped by almost $10,000 per hectare throughout the second half of 2021 and 2022.

At one stage, there were examples of dairy support properties selling at close to the same prices per hectare as fully improved dairy farms.

The surge in support block prices resulted in higher analysed land values for these properties compared to comparable dairy farms with higher longer-term profitability.

In Southland, while the volume of transactions slowed through the 2022-2023 season, prices appear to be holding at levels comparable with the end of the 2021-2022 dairy season.

The market is less active with fewer dairy farms being listed on the market and a smaller pool of buyers, influenced by the current economic environment. The season just finished represents more closely an equilibrium for Southland with 25 transactions, compared to an average of 18 sales over each of the 2016-2020 seasons, the report says.

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