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Appeal of barn-based dairy farms will gauge market strength

July 2021

Investor appetite for the dairy sector has rebounded since the beginning of 2021. Values for dairy farm transactions have returned to levels not seen since 2013. With this season’s forecast payout at a healthy level, and projections for the next few years firmly signalling it will remain that way, dairy again presents as a sound proposition for reliable medium to long term returns.

As the rural property market is less seasonal than it used to be, rather than holding off on listing until the spring, we have owners of several dairy farms offering them for sale before the end of August. These will likely be eagerly received by prospective purchasers. Included in their number is a small selection of farms that include a barn as a critical feature of their management system.

Based on several trends, barns are likely to become more prevalent in our region in the coming years. Dairy farmers are motivated to switch to a barn-focused system for at least one of the following: pasture protection during winter, driving animal performance higher, or reducing their environmental footprint.

Putting your herd into a barn during winter or through the rest of the season comes at a cost, requiring significant initial investment and greater inputs of supplements than more extensive pastoral systems. However, the rewards will repay the investment, particularly when measured over the longer term.

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Benefits include significant improvement in feed utilisation; enhanced herd comfort and more accurate herd monitoring leading to better animal welfare, therefore minimising production downturns during adverse weather; and reducing farm maintenance costs associated with paddock renovation. One of the farms that will come up for sale shortly uses these benefits to underpin a winter milking contract, providing a payout premium for winter milk supply of $3.90 over the base price.

In addition, for those with the long term in focus, the environmental benefits of a barn provide great appeal. A barn-based system gives much greater control of nitrogen run-off, providing superior environmental compliance compared to more conventional systems.

Because of the cost involved initial payback on the investment in a farming system of this type takes a few years. Farms in this category that are coming to the market, in Mid Canterbury and North Otago, were developed at least eight years ago, meaning increased production since has enabled our vendors to recoup what they spent up front.

Farming this way is likely to grow in the future. If so, purchasing these farms will give their new owners a head start. Gauging their appeal over the coming months, in a positive market where those in the sector are more willing to embrace change, is a pointer on how soon that trend is likely to accelerate.

Column provided by Calvin Leen, Mid-South Canterbury and North Otago Sales Manager for PGG Wrightson Real Estate Limited.