Dairy farm prices tumble 25pc

Andrew Gorrie/Dominion Post

FALLING BEHIND: The fall in Fonterra's milk solids payout has hit farm assets as the median sale price for dairy farms fell 25 percent from last year in June.

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Prices of dairy farms on the market today are a full 25 percent lower than they were at the same time last year as the industry is struck by the falling price of milk solids.

The latest Real Estate Institute of New Zealand data for rural property released today showed the national average price fetched for a dairy farm in the three months to June was $3 million, more than a quarter less than the national average of $4.03 million in the same period last year.

In that time, the Fonterra payout has swung from $7.90 per kilogram of milk solids to its current forecast of $4.55 for the 2009/10 dairy season.  The US and Europe also started subsidising dairy exports which have put pressure on unsubsidised New Zealand dairy exports.

REINZ rural spokesperson Peter McDonald said it was no coincidence the national average price for farms tracked the Fonterra payout for milk solids, noting farm prices in 2007 were low when the Fonterra payout was $4.46.

"The Fonterra payout is a pretty good barometer of where we can expect the rural real estate market to be," McDonald said.

Taken on the whole, the market for farm property extended its extremely weak run in June, but may have found some stability as average prices held firm across the country.

The latest Real Estate Institute of New Zealand data for rural property released today showed only 285 farms were sold in the three months to June, well down on the 711 sold in the same period last year, and the 665 sold in 2007.

Volumes have been at extremely low levels since November last year as lower dairy payouts and tightening finance conditions dampened enthusiasm for rural purchases.

Prices held steady in June, with the national average sale price at $1,155,000 compared to $1,150,000 in May.  However, this year's average was well down on the same period last year, which was $1,805,000.

Meanwhile, the market for lifestyle properties mirrored the weakness felt in residential property prices, with the national median sale price in June down 7.4 percent to $421,250 from $455,000 in the same period last year.

However, the turnover for lifestyle properties remained strong, with 1354 properties sold in the three months to June, up 15 percent from 1177 in the same period last year.

McDonald said this jump in sales demonstrated the difference between the market for lifestyle blocks and farms.

"Unlike farm prices, lifestyle prices didn't peak dramatically during 2008, but neither have they fallen significantly despite the general economic conditions," he said.

- © Fairfax NZ News