As at April 2024
Stabilisation in farm values on the back of improved payout, but high input costs eroding higher payout.
The dairy industry has been in a holding pattern in recent times but noting the 2016 – 2022 season payouts have seen some stabilisation in farm values in recent times following a period of softening in farm values throughout the 2018 – 2020. This is on the back of the Reserve Bank’s commentary on the dairy sector at the time that urged the highly indebted wider agricultural sector to keep repairing its balance sheet because risk looms.
The 2022/23 season saw final payout of $8.22/kgms, with 2021/22 season $9.30/kgms. This compared to $7.54/kgms in 2020/21 and $7.14/kgms in 2019/20. The most recent Global Dairy Auctions have shown an increase after falls over the previous six months in whole milk powder in particular which has the greatest bearing on Fonterra’s “Farmgate Milk Price”. The 2023/24 season forecast is in the range of $7.50 - $8.00/kgms.
“There are still a lot of unknowns in the global demand and supply picture and farmers are urged to be cautious with their budget predictions”.
Whilst the projected payout for the coming season for dairying is still encouraging, to date it has been “insufficient to change the mood of inherent caution prevailing within the rural sector, or to offset the combined negative impact of regulatory control, compliance costs, difficulties with labour and the increased costs for inputs such as fertiliser and fuel.”
The most recent sales indicate values at around $40 - $45/kg milk solids. Further analysis indicates land without buildings and Title allowance at $30,000 - $35,000/ha or $35/kg milk solids.
The latest Real Estate Institute data (5 April 2024) shows that there were 32.3% fewer farm sales for the three months ending February 2024 compared to the same period in 2023. The decline in sales has been part of a broader trend over the preceding nine months as buyers took a cautious approach to buying land in all sectors across the country.
The size, standard of improvements, location and soil types are key factors in determining saleability and value. The subdivision potential and house site allowances provide additional value over and above the productive base and also reflect a degree of liquidity of security.
Previous strong demand for horticultural land has propped up the value of a number of farms in the Bay of Plenty region, but the recent reduction in orchard values has seen the demand for bare land significantly reduce.
Kiwifruit Market
As At March 2024
It is well documented that the kiwifruit industry had strongly rebounded following the discovery of the disease Psa in 2011. Value levels strongly increased on the back of profitability in the Green (Hayward) variety, supported by the success of the new Gold (G3) variety which has also shown good tolerance to Psa. The value levels climbed to an all-time high, in approximately May/June 2022.
However, the kiwifruit orchard market is depressed at present after its relatively long run of strong returns and high orchard values. The more recent climatic and marketing risks that have been highlighted over the last 12 months, together with the associated drop in payout levels, have seen confidence drop significantly as a result.
Kiwifruit orchards are analysed into productive assets per canopy hectare (land, vines, structure, shelter irrigation, crop and licence) from various sales. They exclude buildings and house site/title allowance and other surplus land.
The value levels for top quality Gold orchards (excluding crop) peaked at $1,750,000 per canopy hectare 18 months ago, but from the very limited number of sales, indications are the market has significantly softened and there is little buyer enquiry. Normally we would expect a number of sales from late 2023 onwards. However, the market is not really trading at present with the most recent weather events and relatively poor payout impacting on confidence. Our current assessed value of top quality orchards in the Bay of Plenty is around $1,400,000 per canopy hectare. This represents around a 20% reduction from the market peak and this is based on a very small sample of sales.
Sales of Green orchards over the last six months in the wider Bay of Plenty indicate a relatively wide range from $360,000 ‑ $460,000 per canopy hectare (land, vines, structures, shelter, irrigation and crop). There have been very few recent sales and Green orchards are proving very difficult to sell.
