Banks re-entering the market, vendor finance, helps drive spike in dairy farm sales, the REINZ says

Banks "re-entering the market" helped drive a total of 30 dairy farm sales in December almost matching the 31 dairy farms sold in the six months from June to November last year, the Real Estate Institute of New Zealand's (REINZ) latest rural market report reveals.

The 30 dairy farms sold in December was the most in one month since 41 in May 2008. REINZ said a total of 96 farms sold in December, up from 93 in December 2009 but down from 128 in December 2008.

REINZ rural market spokesman Peter McDonald said the "rush" of dairy property deals in December had helped lift the median farm sale price to its highest level of 2010. He said the sales rise was due to banks re-entering the market although they were showing a strong preference for supporting substantial purchasers at the top end of the market. Vendors leaving in finance had also helped make many of the sales happen.

"From NZ$968,500 at the end of November 2010, the national median farm sale price rose to NZ$1,150,000 for the three months to December 2010. This is a 15% increase on the median of NZ$1,000,000 for the last three months of 2009, but still below the median of NZ$1,525,000 for the equivalent period in 2008," said McDonald.

Based on the median price of NZ$3.59 million, the 30 dairy farm sales were worth more than NZ$108 million.

McDonald said the 30 dairy farms sold in December was "a huge boost" for the rural sector.

“It marks a return to confidence in dairying which is more than justified by the positive returns being achieved,” he said.

McDonald said the price per kilogramme of milkfat solids averaged NZ$41 in December, up NZ$4 per kilogramme from November figure, although it ranged from NZ$29 per kilogramme to NZ$63 across the country.

“There was also a huge variance in the price per hectare with two farms in Taranaki selling for approximately NZ$58,000 per hectare and others for less than NZ$25,000 per hectare. This wide variation in prices was experienced throughout the country.”

Fonterra said last month it expects to pay its dairy farmers NZ$6.90 per kilogram of milksolids in the 2010-11 dairy season. The dairy co-operative said that means a 100% share backed farmer should earn, on average, the equivalent of NZ$7.30-NZ$7.40 before retentions, comprising milk price (per kgMS production) plus distributable profit (per share held).

"On a cash basis, the same farmer is forecast to receive a total of NZ$7.15-NZ$7.25, comprising milk price (per kgMS) and dividend (per share) - with the balance of the profit being retained by the Co-operative," Fonterra said.

That follows a 2009-10 payout of NZ$6.70 before retentions, up from $5.21 in the previous year.

This article has kindly been produced courtesy of Interest.co.nz

Posted: 21 Jan 2011

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