Fair market value in a blustery autumn
On the land, sustained red meat prices reflect one of the best seasons yet, the main driver of the traditional pastoral sheep and beef profitability these days as wool remains in the doldrums. Unfortunately, many pastoral farming operations sold stock forward pre-Christmas in anticipation of a drought which ultimately never eventuated thus optimising current schedules has proved challenging.
Horticulture continues to boom however process cropping is having mixed fortunes
Dairy pay-outs are forecast to stay at around $6 per kg MS or for the foreseeable future on the current market outlook to 2019/2020. This season’s forecast Fonterra dairy pay-out, sustained by New Year market gains, still looks solid at around $6.40. However holding production economically has proved challenging this season given the climatic impacts around the country. Agribusiness debt levels are being managed but the forward interest rate risk remains on the upside. Equally there’s no sign of sustained depreciation in the currency given the overall improved strength of the primary export sector as a whole relative to dairy.
In rural property, there has been a lot of market commentary that negative sentiment is the prevailing wind – that the combination of a change in government and the current economic outlook is blowing vendors and purchasers further apart. Not so, in fact! This season has seen good dairy and livestock properties continue to sell – and to sell well for both vendors and purchasers. Sales statistics and anecdotal evidence point to plenty of parties seeking fair market value (FMV) when marketing and pricing of farms. That’s very positive for the market.Economic and climatic winds will always blow in every direction and sentiment move with them. But this rural property market reflects a return to fundamentals.
Simply put, every farm has a fair value discernible at any time by weighing positive and negative factors of most relevance – farm type, location, production and earnings history and so on. The current selling process calls on parties to take a long-term view based on the fundamentals of each property but also to recognise that, yes the market moves in cycles – and at any given time, adjustments will need to be made based on the discovery of a fair price that is both bankable and sustainable. Our team is playing an active role in supporting this due-diligence approach.
The FMV approach brings vendor and purchaser together. Both are far more inclined to realism on price – more willing to “meet the market” having done some objective analysis on the particular property and recent selling prices across the same category. Sentiment, negative or positive and based on the news of the day, will be taking a back seat at this stage! This all leaves still plenty of scope for smart marketing.
Presentation of the property really matters, and so does emphasising its strengths relative to others in the same or a different region, category or whatever. Our objective is to work with buyers and bring them to the realisation that there are no bargains to be had, given our disciplined marketing approach and commitment to our vendors. But the vendor and their agent must remember always that they alone do not set the farm’s value – that’s up to the market.
The best agent comes up with a great marketing strategy, then brings in multiple realistic offers
They know that all parties will, most likely, have to move for sale value to be achieved. In any scenario, there is definitely scope for premiums above FMV – premiums that represent increments of value arising from the circumstances of the particular vendor or purchaser. Neighbouring property owners might, for example, offer more for the “investment value” in their being able to aggregate your farm (or part of it) with their existing operation. Sometimes, there’s a “value-in-use” premium: The buyer foresees additional value in their acquiring and converting the property to other, higher-earning uses. The simple fact is that potential buyers bring their own array of plans and circumstances to the table in any sale process, these plans are unlikely to mirror your current operating system. Their access to funding is one obvious consideration as the banking sector continues to encourage higher equity ratios and loan amortisation.
So as the 2017-18 season proceeds into autumn, we should look for more of the current Property Brokers Country – True Team approach. Our approach is to sustain – and grow – rural property market activity in the service of both vendors and purchasers. The best marketing strategy starts with a firm appreciation of likely fair market value for your farm and the best agents, then work as team to add premiums over that by identifying all sources of value aligned to the needs of potential buyers.