Product prices and confidence are up – property market next?
New Zealand’s rural economy is in its best shape for years and as the 2017-18 season warms up, more people will be seeing the value in farm ownership.
Well they should...
...Everyone has got the message about higher milk prices after two depressed years, but the rural economy is also getting a huge boost from continued strong beef and deer prices plus a long-awaited improvement in lamb prices. That Fonterra forecast in July of $6.75 per kg of milksolids for 2017-18 was great news indeed – and by late September, we were seeing export lamb prices 20% ahead of last year.
Clearly now, product prices are up on the back of reduced supply into our major international markets – reduced from New Zealand and from our competitors.
Given this, we can expect prices not to retreat again in a hurry, giving New Zealand farm incomes a well-earned boost in 2017-18.
For the rest of us, current pricing developments are a great reminder that New Zealand is, indeed, an efficient producer of high quality food products which are in demand from customers around the world. Customers who are, in some markets, increasingly affluent and discerning about what they eat and wear.
Back on the farm, Rabobank New Zealand’s confidence index says it all. This quarterly measure of farmer expectations and intentions shot up in June to its highest level in 14 years with 57% of those surveyed anticipating further improvement in the rural economy over the year ahead.
The surge in confidence was actually greatest among sheep and beef farmers. Across all sectors, more than 50% of farmers were expecting their own financial performance to improve this year.
Higher confidence is feeding through to investment intentions, these were up also in the Rabobank survey. 40% of the sample said they will be investing more in their businesses over the coming year, which is quite a jump from 31% in the previous survey (March 2017). Some of that increased investment intention will certainly be directed at the property market – farmers looking to expand through acquiring blocks of land (or whole farms) across the fence or down the road. That has, of course, been happening over many decades as reflected in the increasing average size of New Zealand farms.
Perhaps more today than in the recent past, farmers and investors are valuing what they intend to buy through analysis of likely future productive capacities and prospective financial returns. Land and improvements are being valued on farming fundamentals, free of speculation around how capital values might move in the short and medium terms. The analysis is not easy and people already on the land – those grappling with production costs and commodity price cycles – have a head start.
Banks are driving rural property buyers in the same direction. The days of speculative lending on farms are over and loan applications usually have to be accompanied by rigorous cash flow forecasts, sometimes stress tested at interest and exchange rates rather higher than the levels prevailing at the moment. Risks and returns are under the microscope for first-time investors and established farmers alike.
None of this has actually dampened the rising tide of confidence within and around New Zealand farming. That is evident in the Rabobank surveys but also in the general rural property price trend – a trend that is definitely upward, albeit at a modest pace. The Real Estate Institute’s all-farms price index rose 9% in the most recent year (ended 31 July).
Median sale values were up across all farm types, allowing for some variation between different regions.
What has not been up this past year is market sales volume. Institute statistics show a total 1,739 farms changed hands in the July year which was 1.5% fewer than in the corresponding 12 months to July 2016 (which was itself a down year).
Confidence is up and more people are attracted to farming but it’s not driving any great flurry of market activity, probably because of that shift to pricing on fundamentals and very recent memories of depressed farm incomes. We are in a recovery phase. People can always be confident and cautious at the same time!
The weather has not helped. Much of New Zealand has had its wettest winter and early spring for years – and that makes it hard to show properties at their best. No vendor wants to invite prospective buyers onto muddy paddocks and driveways.
In fact, the market virtually ground to a halt in some regions through these recent winter months after what was actually a lively autumn sales period. We are all looking forward to some serious sunshine, dry ground and lush spring growth. The latter will be just reward for several months of exceptional wet in Waikato, Manawatu and elsewhere!
All indicators point to 2017-18 being a year of consolidation and steady growth in New Zealand farming. People are carefully weighing their property market options and running the numbers. At Property Brokers, we expect a more active and satisfying season for vendors and buyers – more so than the past two seasons. We’re certainly ready to serve the market, whatever transpires, our deep experience and knowledge of farming and of rural property.
Waikato definitely ready for spring growth.
Waikato has been waiting for the rain to stop and once the sun returns, the property market is expected to take off … just like the grass. The region has had its wettest winter and early spring for years, this having an obvious dampening effect on farm sales. But interest in the market is certainly up on the back of higher prices for milk and lamb, and continued strength in beef and venison.
Property Brokers has several substantial property auctions in the pipeline but dates have been pushed back in anticipation of the drier days to come. Overall, the Waikato market has more listings and more activity than at the same point in the past two years. In the latest eight month period (to 31 August), 54 dairy farms have changed hands compared with 27 last year. Livestock and arable property sales have been up also, and prices have generally firmed relative to 2016 in all categories. Waikato continues to offer investment opportunities for all types of farming, with most buyers seemingly well appraised of new regulations around nutrient run-off and of pressure on the region’s irrigation water availability (not so much an issue so far in 2017!)
Notwithstanding the weather, spring has opened with several exceptional properties coming to market. Among these, Property Brokers has listed Midway Meadows, a 572 hectare mixed farm off State Highway 1 between Taupo and Tokoroa. Midway includes 315 hectares of dairy pasture and an automated shed milking 1100 cows, along with beef finishing and cropping activities. Part of the farm is leased for a forestry operation. There are also five houses and other high quality farm infrastructure. Further west on the Central Plateau, near Whakamaru, Property Brokers is marketing a very productive 414 hectare dairy unit priced at $12.2 million. This self-contained operation on Sandel Road, has a five-year annual production average of 293,000 kg of milk solids.
Across in the King Country, the market is also gathering more interest this spring. Among listings here is a 357 hectare farm in the hills near Taumarunui specialising in manuka honey production from regenerating scrub. Current owners built an on-site honey extraction plant two years ago and last season’s harvest was 9 tonnes from bees in 280 hives. The farm on Pukeatua Road, still has 60 hectare of deer-fenced ground and can carry 1200 stock units on pasture not covered by the manuka and other natives which are now (productively) reclaiming the landscape.
Manawatu, Wanganui & Rangitikei
Manawatu enjoys the upturn in milk and meat prices.
Like other regions, Manawatu has been deluged recently and this has put the brakes on some property market activity. Farmers are also enjoying the new production season in light of higher milk and meat prices – keeping the farm could be a better option!
However there are good listings in the pipeline and once the ground dries out, and vendors are less busy, a number of good dairy properties are expected to reach the market. Industry statistics show just three have changed hands in Manawatu during the first eight months of 2017 (to 31 August). They have included the notable $14.5 million sale of a well-developed dairying operation near Otaki. The same period saw 24 grazing, finishing and arable properties sold across this region – on par with market activity through the previous two years.
Among these sales, Property Brokers successfully marketed Twin Rivers, one of the largest land holdings of its type in the Manawatu. With 659 hectares of rolling hills and extensive flats in the Awawa area, Twin Rivers is a very well-developed breeding and finishing farm with significant cropping potential as well. It sold for $7.56 million.
Property Brokers is picking up good interest in grazing land across the region, especially in smaller blocks which farmers already in the region can acquire to grow their existing operations without strain on balance sheets. This side of the market will benefit from the higher farm incomes that result from improved product prices during 2017-18.
Meanwhile, Whanganui district has also been very wet this winter and early spring – and vendors have waited for drier ground before moving into the market. That said, several large livestock farms are expected to come forward before too long. The earlier months of 2017 were reasonably active in Whanganui with 22 grazing, finishing and arable properties changing hands between 1 January and 31 August.
They included a 631-hectare grazing block off the Papaiti Rd, adjacent to the Whanganui River, which sold for $8.9 million. As in Manawatu, Property Brokers is receiving good inquiry for bare land blocks that might be suitable for livestock or forestry. In Whanganui farmers are likely to carefully weigh their options firming their intentions to invest for growth through additional land purchases across the fence or down the road.
For more information, contact Blair Cottrill 027 354 5419 or Richard White 027 442 6171
Hawke’s Bay looks beyond recent water issues.
Hawke’s Bay water management issues are doing little to dampen interest in rural properties this spring. New listings are up and the market continues to reflect good interest in the region’s productive potential over the long term.
Properties Property Brokers’ recent listings include Tuki Tuki Awa, a 301 hectare dairy farm of excellent quality in the Makaretu/Ashley Clinton district. This property, with 135 hectares of milking platform and secure irrigation, produced 177,000 kg of milk solids at its peak in recent years. Dairy units like this rarely come to the market in the Hawke’s Bay. In fact, market statistics show no dairy properties have changed hands in the region so far this year (from January to 31 August) and there were only three sold in the whole of 2016.
Finishing farm sales are rather more frequent and the market has seen 12 sold during the January-August period, on par with the corresponding months of 2016. The statistics show that the median per hectare price on finishing farms has, however, tracked down slightly in 2017 – probably in reflection of water availability and fresh water quality issues which have been much in the news this year.
The market has been grappling with the implications of a stalled Ruataniwha Water Storage Scheme in the region’s south, new scrutiny on ground water management on the Heretaunga Plains, ongoing investigation of last year’s Havelock North water contamination event, and new Hawke’s Bay Regional Council rules on farm nutrient control and runoff. The Ruataniwha scheme has been shelved at least for the time being, and the council has signalled a moratorium on new water consents from the Heretaunga aquifer.
Notwithstanding these issues, many buyers still see the long-term potential in Hawkes Bay farming, the more so in context of today’s milk price recovery, continued buoyancy in horticulture and positive trends in the red meat sector. There remains also a confidence that more water will become available for irrigation over time, and that fresh water quality issues will subside as new requirements for environmental protection are embedded in agriculture and horticulture. For people able to take a long view, now is a good time to be in the market.
Other current listings by Property Brokers include long-established Otoka, a 370 hectare breeding and finishing farm on limestone country south of Waipukurau. Once the home of Otoka Angus Stud, the farm is now used for ewe breeding, and lamb and cattle finishing with good results.
Tararua – land of opportunity.
Tararua continues being a land of opportunity for first dairy farm buyers. The plains between Eketahuna and Woodville are favoured for their rainfall, central location and generally lower land values compared with bigger dairying regions.
Dairy farm sales in Tararua have picked up in 2017, six changing hands between 1 January and 31 August. Among these sales, the median price was $26,900 per hectare.
This spring has brought a crop of new listings that include ROC Dairies, a 295 hectare standalone dairy unit west of Pahiatua. Marketed by Property Brokers, this property has an excellent gravity-fed water system and its own hill country support grazing. DOC Dairies is outside the priority catchment in Horizons Regional Council’s One Plan for regulation of farm nutrient leaching. The plan’s restrictions in such catchments are still subject to review and finalisation – and in the Tararua market overall, some participants are holding back until that process has been complete and the implications for farming become more clear.
Tararua is also known for its diversity of livestock properties. The new season sees a good selection of these coming to the market and this continues the relatively high level of activity seen for much of the year so far. Market statistics for the eight months ended 31 August show 20 grazing farms have changed hands, along with eight finishing properties. Per hectare, prices in both categories have been similar to 2016.
Among new listings is the large-scale Kaitawa property near Alfredton. This well-developed grazing and semi-finishing farm has 542 hectares of hill country and flats, and the latter include improved pastures that are suited for lamb and cattle finishing.
Canterbury & North Otago
Canterbury – versatile, productive and on the move.
Canterbury is on the move. Sales activity has been up this winter and, overall, prices have firmed slightly. The region is well into the new season with rural property listings on the increase and an air of confidence not seen since 2014. Market statistics for Canterbury show six dairy properties were sold during the three months ended 31 August, along with 25 livestock finishing farms and six arable units. These numbers are well ahead of the past two winters. Indeed, no dairy farms changed hands in the corresponding three months of 2016. In the latest period, the median sale price in dairy sales is now approaching its level of three years ago (although, in fact, the intervening period did not bring any marked retreat in prices on low sales volumes).
Buyers are clearly responding to the milk price recovery, along with continued buoyancy in beef prices and the lamb price improvement seen late in the 2016-17. Canterbury, with its diversity of properties and versatile land use, is always one of the first regions to pick up as confidence improves across New Zealand agriculture.
This year buying interest is largely from people already invested here – those who can best see the longer-term potential and know how to apply farming fundamentals to the valuation of land and developments in the region. Banks are certainly encouraging this by requiring rigorous cash flow analysis as part of loan applications. As farm incomes edge back up in 2017-18, many on the land have prioritised debt reduction – and some also see more opportunity to sell up amid the revival in confidence. The market statistics show Canterbury finishing farm sales during the latest three months were double 2016 with the median price lifting to $36,000 per hectare. That reflects some shift from dairy to beef in line with commodity price trends. With milk prices recovering, there is renewed interest in dairying and also in arable land for growing maize and grain as feed crops that will support higher milk production.
Canterbury’s versatility is definitely coming to the fore! Property Brokers has a strong flow of new listings this spring. Prominent among them is Brander Farms, a higher-performing dairy unit on 294 hectares at Lowcliff south east of Ashburton. This is a premium, A2 milk supplier to Synlait which produced 1530 kg of milk solids per hectare last season. Brander Farms has excellent infrastructure including large-scale centre pivot irrigation. Tenders close 20 October.
For further comment, contact Mark Lemon 027 339 6665