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Economy Slowing But Dairy Farm Values Holding July 2023


Economy slowing but dairy farm values holding

January’s frosts and the cyclones in the latter stages of the summer meant our country’s food producers started 2023 on the backfoot and it has led to a challenging first half of the year. 

That extreme weather, coupled with recession announcements, begs the question of what this means for farm values. As a global company, Colliers has one of the largest local rural valuation teams in New Zealand and its Rural & Agribusiness Valuation & Advisory team keeps a watchful eye on market transactions, sentiment, and conditions.

With a comprehensive knowledge of primary sector trends, client on farm operations and regulatory issues, along with research and analysis, the team has a high-level view of the market.

During the past year to May, overall farm transactions have reduced, with recent data from the Real Estate Institute of New Zealand illustrating the number of rural properties that changed hands in this period fell by 35 per cent. Dairy properties traded fell 38 per cent, livestock properties 31 per cent, and horticultural properties by 57 per cent.

Chris Boyd, Director of Rural Valuation at Colliers, says although the market has slowed in terms of transaction numbers, values are holding for Tier 1 dairy properties.

“Tier 1 dairy properties refer to those properties that tick all the boxes for potential buyers. These include appropriate soil types for land use, suitable contour, environmental farming consents in place, high production levels, and no detracting features,” Boyd says.

“In short, quality properties with the entire package have comparable values to a year ago.”

Boyd says the sector of the rural market that could feel the pinch of this slower sales period is lower tier properties.

“Rising interest rates may impact farm expansion plans and with construction price increases there is a renewed focus on the standard of existing infrastructure and dwellings on farm which is impacting values.”

Shane O’Brien, Director of Rural & Agribusiness at Colliers, says with regards to market sentiment many buyers may take time during the winter to assess their options.

“The reduced number of sales is also impacted by buyers continuing to take a wait and see approach to buying amidst the backdrop of higher interest rates, farm expenses increasing (reported at approximately 16 per cent), and lower farm incomes off the back of adverse weather and challenging economic conditions,” O’Brien says.

“In addition to existing costs, further regulatory requirements could add new costs and complexity to many farming operations. Given it is an election year there is an expected level of uncertainty in the market.”

But as we move into the second half of 2023, James Nilsson, National Director of Rural & Agribusiness at Colliers, says there are still plenty of reasons to be positive.

“Regardless of events beyond our control such as the weather, purchasers are still willing to pay for the right property that suits their requirements. Recent sales evidence indicates prices were consistent with the past two years, particularly in the Tier 1 quality arable, dairy, and dairy support sectors. So, we are still seeing activity in the market,” Nilsson says.

“We’ve continued to see sales of quality farms that are consistent performers due to fertile soils, well set up centralised infrastructure, and reliable irrigation systems. One specific recent Colliers transaction was a 108ha irrigated multi-use property in Mid Canterbury, this farm was well-located in a premium farming area with a history of regular farming inputs.”

 

 

 

Get in touch with our National Rural and Agribusiness Director James Nilsson for further information.

 

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