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Spring is here – and along with the grass, confidence is growing strongly in our rural economy. Looking around New Zealand today, the countryside has rarely been greener or fuller in productive potential. Spring started well after a generally mild winter. The official long-range forecast is for warmth and average rainfall in most regions until Christmas at least. Unlike this time last year, no-one is predicting summer drought.


For all who are involved in farming, there’s something to smile about, starting with milk prices. In late September, Fonterra put its forecast Farmgate Milk Price for 2016-17 at $5.25 per kgMS – a big relief after two years of depressed payout to producers.

 

The most optimistic of dairy sector commentators think the price could go to $6 this season. The global supply-demand imbalance in milk powder seems to be clearing more quickly than expected. Of course, all eyes remain fixed on the fortnightly Global Dairy Trade auction, and the next response from Fonterra and the other milk companies. The financial outlook for dairying is definitely brighter.

 

And the renewed confidence is spilling across to drystock where farmgate beef prices remain favourable. In fact, they’re holding most of the gains made since late 2013 and no-one is foreseeing any sharp reversal while US beef demand remains strong. New Zealand lamb prices, on the other hand, continue to disappoint under the weight of competition for supply into European markets. In its annual outlook (in June), the Ministry for Primary Industries (MPI) doesn’t see lamb schedule prices turning up until 2018. But perspective is required! Today’s sheep meat and wool prices are well above their levels of a decade ago (and actually, wool has been buoyant over the past year). This country remains extremely well positioned to meet demand growth for red meat over the long term in Asia, North America and Europe.

 

That’s true also for venison – and for deer farmers, the upturn has definitely arrived after several years of weak prices and herd reduction. So far this season, venison farmgate prices are up 10-15% on the corresponding period in 2015.

 

Looking across the fence at horticulture, there’s been no downturn at all! MPI reports that our horticulture-based exports surged past $5 billion in the year to 30 June 2016, thanks in particular to higher volumes and higher prices in kiwifruit, pip fruit and wine. The outlook for most horticultural sectors continues to be very positive.

 

Rural Graph 2016-1 Rural Graph 2016-2Rural Graph 2016-2

Rural economy-wide, people are also drawing confidence from our continued low inflation and interest rates – and signs of that longhoped-for depreciation in the New Zealand Dollar. Our currency index is now down around 5% from its high in late 2014 – and listening to the Reserve Bank, it is clear that further depreciation is
coming. When the dollar is down against our major trading partners, as everyone knows, that spells higher returns to farmers and growers.

 

No surprise that Rabobank’s regular survey of farmers is showing confidence at its highest since 2013. The latest survey (September) has 48% of farmers expecting the rural economy to improve over the coming 12 months (and just 13% foreseeing some deterioration).

 

No surprise either that confidence is returning to the rural property market after two subdued years.

 

Spring has brought a seasonal increase in activity, and we foresee a quickening pace in listings and sales as 2017 approaches. Buyers are seeking opportunities for new investment or expansion in New Zealand agriculture and horticulture at this point in the cycle. Sellers are dusting off plans shelved a year or two ago to scale back or exit their particular sector for business or personal reasons. More than ever, we see all parties putting strong focus on farming fundamentals – global supply and demand trends, farmgate returns, niche market opportunities and production costs. The days of farming just for capital gain in the land are long gone.

 

In addition, the market is paying much closer attention to environmental issues from region-to-region. Climate change is heightening the perennial concerns of all farmers about potential for drought and/or about pressure on water supply for irrigation. Fresh water quality and nutrient management, and their associated costs, are also coming to the fore.

 

Regional councils are responding to the Government’s 2014 National Policy Statement on Freshwater Management by setting objectives and requirements.

 

Dairy and drystock farmers are being asked for more rigorous nutrient budgeting, stocking rate adjustments and the fencing of waterways. Some councils are further along than others: In many areas, farmers are either meeting the requirements already or quietly getting on with it.

 

Water resource management is a live issue in some regions, notably Hawkes Bay and Canterbury. Rural property values will respond as scheme investments unlock the potential for both productivity and environmental gains. Advances in precision irrigation are now having a positive impact on production costs in some regions, and of course that flows through to land valuations. The market is increasing aware of the potential attached to other new farming technologies, along with ongoing investment in New Zealand’s processing capacity and transport infrastructure.

 

Buyers and sellers are drawn increasingly to take a view on all these factors. The former include more already-established farmers and/or rural investors keen to leverage their knowledge for acquisition of properties in the right locations and at the price for them. Among vendors, succession planning is an increasing driver. The country has an ageing population of farmers and retirement usually means on-sale of farms to the next generation or other buyers.

 

We see the property market shifting up a gear in 2016-17 supported by strong strategic buying and selling – strategic because parties on both sides pursue well-identified personal and/or commercial goals and make decisions based on their sound understanding of fundamentals, nationally and region by region.

 

Remember the old adage: Forture favours the brave. Well, it also favours the confident when they’re well informed and well motivated!

   
   

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