The rural property market heads further into 2017 with renewed confidence after two subdued years. Listings and sales activity are up, and prices are generally on the rise.
That said, it is a slow and uneven recovery as vendors and buyers weigh their options and take time before agreeing to sell or buy. We’re seeing a renewal of confidence tempered by plenty of pragmatism over the prospects of farming in the short and medium terms.
The drivers of confidence are certainly clear and present: That surge in global milk prices since last June; higher returns on venison, timber and horticulture this season; continued buoyancy in beef exports to the US; interest rates at historic lows; and excellent growing conditions across much of the country through spring and summer (with some regions being notable exceptions).
However, there are obvious reasons for caution too. Fonterra put its farmgate price up to $6 per kg of milksolids in late November – and some predict another increase yet – but milk volume for 2016-17 will be down, having a negative impact on dairy farm cashflows. It has to be acknowledged also that sheepmeat and wool prices remain depressed this year, and no-one is forecasting general earnings recovery in that industry before 2018.
Over the same timeframe, farmers everywhere are being prompted to meet newly-articulated environmental requirements from regional councils under the Government’s national fresh water policy. In fact the additional costs in fencing, nutrient management and waterways protection – much of that work has been going on for years anyway – are not expected to be great. But we are transitioning into a new era of environmental regulation and some uncertainty on what this actually means from farm to farm is inevitable.
Perhaps the biggest quandary faced by New Zealand agriculture today is the risk of disruption to global trade should the Trump Administration carry through on its protectionist threats.
It is, of course, a quandary for every industry in all countries! The last thing we need are higher tariffs on beef and venison going into America, or for this country’s trade with China in dairy, wood and horticulture being knocked around in some global trade war.
Surely sanity will prevail as the US and its major trading partners (New Zealand not included) work out better ways of addressing their perceived trade imbalances.
We go further into 2017, then, with some big issues hanging around. But let’s be clear – confidence has the upper hand again in this country’s primary sector.
Rabobank’s quarterly survey of confidence is one useful indicator. Survey results in December put 39% of farmers expecting things to improve through 2017 (with just 14% seeing a deterioration). Yes, the overall confidence level dipped in comparison with September when it roared up from previously depressed levels, but Rabobank concludes that rural economy confidence “remains at high levels”.
We see plenty of signs in our business, albeit with variation in confidence levels between regions and industries, and without confidence yet being fully translated into market activity and prices.
Looking back, industry statistics show a small drop in property sales last year but an increase in prices overall. The All Farm Price Index* rose 4% between Decembers 2015 - 2016, with the dairy farm sub-index recovering 1.9%. In fact, the dairy index ended the year still 9% lower than its level of December 2014 – and that shows how hard dairy property values were hit as global milk prices and processer payout rates fell sharply during 2013-14.
*The Real Estate Institute of New Zealand’s All Farms Price Index is a market indicator in which median selling prices are adjusted for differences in farm size, location and type.
The industry statistics suggest that the rural property market was gathering momentum towards the end of 2016.
In dairying, the median price of farms per hectare during the December quarter was a whopping 17% up on the corresponding period of 2015.
And it was not just dairy farms – the median price for livestock finishing farms was up 24%.The trend is set to continue this year. The upside is, surely, clearest in dairy farm pricing!
Across the market, we see some reticence among vendors – actual and prospective – who recognise all the grounds for confidence in the future of farming, but are holding out for that confidence to flow more fully into demand and offer prices for their particular property.
Buyers, on the other hand, are more inclined than ever to thoroughly research the market and subject properties to rigorous due diligence before moving on them. Recent months have seen a predominance of strategic buying where established farmers and/or rural investors pursue farms or blocks of land that augment their own operations and portfolios. They know exactly what they are buying and why.
Of course vendors and buyers must meet at some point. We see 2017 as a highly promising year for both. It’d be a pity for them to miss out while spending too much time either second guessing future prices or analysing the risks and benefits attached to what are excellent property opportunities in a recovering market!