The last few years has seen more than its fair share of head winds for dairy farmers on the West Coast.
“For those looking to invest or buy their first farm in the region, 2019 could see the beginning of positive change for the West Coast,” says Gareth Cox, Senior Rural Consultant at Property Brokers, with strong links to farming on the West Coast.
“This week we took a party from Canterbury, a mix of bankers and farmers, to see first-hand current listings and farmers who have successfully made the transition in recent years to dairying on the Coast,” says Cox.
“The quality of the farming systems, on sustainable platforms, combining both farming and lifestyle, featured a lot in conversation. Whilst keeping the business grounded with clear business controls and the goal of keeping farm working expenses under $4/kgms, to drive profit.”
The group also had a briefing hosted at Westland Milk, which included a presentation from a senior agricultural banker and farm accounting specialists.
The outlook for Westland Milk will become clearer shortly but the review of its capital structure appears imminent and the improved pay out this last balance date, has helped to offset recent seasons losses.
Banking terms continue to evolve as banks seek to hedge the volatility of recent milk returns.
“These days you will probably need to have up to 50% of the farm value ‘in cash’ to get to the start line on your first farm,” says Cox. “The other important yard stick will be the need to repay your loan over a 20-year term, from day one.”
“So while these measures are likely to put a ceiling on what buyers can afford to pay, the good news is there is still genuine interest, in buying dairy farms on the Coast. These offers may not quite be where they were five years ago however as the outlook improves for Westland Milk, capital from outside the region is still likely to feature as part of the local investment picture,” says Cox.
Cox details that overall the shift is to profit, not production criteria and given the level of hard-earned capital being invested upfront as part of the ingoing, it is fair to say buyers are looking to make a profit from day one, not 5 years’ time.
“The criteria is 5-6% return on all capital after all farm working and depreciation expenses,” Cox outlines. “To achieve that there needs to be a $2/Kg milk solids profit before interest, or the numbers simply miss on the bank servicing criteria.”
“Buying a farm has never been easy and if current owners are prepared to commit to an open book process with their farm sale process, including farm costs and production, there is no reason why parties should not meet in the middle,” says Cox.
