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Rural property market watch: Have we reached the low point in the dairy cycle?

September 2015

Paul O’Sullivan submission for South Waikato News, August 2015

Based on the latest GlobalDairyTrade auction, dairy farm returns could be on the rise again, in which case any impact the current downturn has on the rural property market should be relatively minor.

International observers suggest that global dairy supply has tightened gradually and the pronounced surfeit of production is starting to ease. While New Zealand farmers are reportedly cutting back cow numbers, so too are their Irish, British and European counterparts, who are also suffering in dairy’s downturn. Meanwhile in the United States, dairy production is also falling as cheap feed is diverted to beef, which is providing more lucrative returns.

As China works through its stockpile, Fonterra will substantially reduce the volumes of products offered for auction over the rest of the year. Russia has also partially lifted trade restrictions.

All this suggests that we have reached the low point of the dairy cycle. Therefore investors looking to benefit from the underlying strength of New Zealand primary production’s story will not hesitate for long and will continue their enthusiasm to acquire rural property.

As spring approaches and activity in the local rural property market goes up a gear, we will see what happens.

A number of farms coming up for auction will give us a strong indication. These include a 488 hectare Lichfield forestry conversion block that provides numerous different farming options; a 187 hectare Tirohanga property with a three-year-old 30-a-side herringbone shed; and a 213 hectare irrigated Whakamaru farm. Interest in all three is substantial and these auctions should set the market for the next few months.

Both here in the South Waikato and elsewhere in the country, experience across PGG Wrightson Real Estate’s nationwide network indicates that investors who seek out opportunities like these will not be put off by dairy’s recent travails:  They are looking at considerably longer timeframes. Therefore values for these properties, plus others that list for sale in the next few months, should at least hold steady, despite the lower payout. We can realistically expect that demand for land, which has outrun the supply of good farms for two years or more, will continue to reign and the predominantly sellers’ market will prevail.

We shall see over the next few weeks.

Finally, congratulations to my PGG Wrightson Real Estate colleagues in the Bay of Plenty – Central Plateau: We were recently named top region across the company’s national network, demonstrating the hard work put in throughout the team during 2014/15 and the strength of the rural property market across our entire region’s farming sectors.

Paul O’Sullivan is Bay of Plenty and Central Plateau Real Estate Manager for PGG Wrightson Real Estate Ltd. Since he began his career in real estate in 1978, he has negotiated sales in excess of $850 million worth of properties, including dairy, sheep and cattle, forestry, waterfront and agri-science projects.

Further information:
Paul O’Sullivan
07 886 1916/027 496 4417