Confidence in Otago’s key primary industries – agriculture, horticulture and viticulture – has picked up strongly. Rising commodity prices and growing international enthusiasm for NZ produce is underpinning this sentiment. Encouragingly this positive outlook looks set to continue and will help support further investment in these land-based industries.
The past few years have seen a significant number of dairy conversions in the region which are now benefiting from a sharp rebound in dairy prices. Since 2009/2010 the total effective hectares of dairy land across Otago has increased by 27% to 88,000ha’s, with the strongest growth recorded in Central Otago (up 239%) to almost 9,000ha’s.
Other commodities showing stronger price and volume growth include apples, especially those for new varieties, as well as an improving outlook for lamb and beef prices. Increasing Chinese housing demand is also expected to underpin log exports and rising forestry revenues. This is all helping support rural property values in Otago.
The Big Picture
Stronger global prices for NZ’s key rural commodities are boosting confidence amongst farmers and helping underpin rural property prices and turnover.
The latest Ministry of Primary Industries (MPI) “Situation and Outlook for Primary Industries” report dated March 2017 points to further primary industry export growth over 2017/18. The turnaround in dairy prices, in particular, has been very positive with Fonterra recently commenting there is now more visibility and certainty in world dairy prices. The most recent Global Dairy Trade auction saw the average milk fat value reach US$3,387/MT, up 110% from its cyclical low in August 2015. This momentum has been reflected in a recent upgrade to Fonterra’s forecast 2017/18 farmgate price from $6.50 per kgMS to $6.75. It is worth noting that every 25 cent increase in payout adds a further circa $465million to NZ’s dairy revenues. Encouragingly should this forecast prove accurate a vast majority of Otago dairy farmers will run at a profit, increasing spending power.
Other star performers include horticulture where growth is being driven by rising exports of apples, wine and kiwifruit, especially higher value gold kiwifruit. Anecdotal evidence points to gold kiwifruit orchards in the Bay of Plenty selling for record levels of around $1 million per ha.
This upbeat sentiment is being reflected in the latest farmer confidence surveys from both Rabobank and Federated Farmers. Confidence per Rabo’s June 2017 Rural Confidence Survey is now at its highest level since the survey commenced in 2003. Farmers across all agricultural sectors were more positive about the outlook for the agricultural economy with the majority citing improved commodity prices as a key reason for increased optimism. Equally the latest Federated Farmers “Farm Confidence Survey July 2017” shows that farmers confidence has increased with improvements seen across the board. These include farmers perceptions of the economy, farm profit, production spending and debt. At a regional level the Otago/Southland area has followed the national sentiment across all measures.
Improving farmer confidence is likely to see on-farm spending increase going forward. Already farm building consents (sqm) in Otago are up 66% over the past 12 months. Tractor and other farm equipment purchases are also likely to trend higher in future.
Rural Property Well Supported
The latest REINZ farm price data for the 3 months to June 2017 showed the NZ All-Farm median price per hectare remains at elevated levels with only a marginal softening of -1.4% to $25,993 compared to the same period in the previous year. In fact the more accurate REINZ All-Farm Price Index, which adjusts for differences in farm size, location and farming types (unlike the median price series) actually rose by 4.9% over the same period.
Prices across all the main farm types remain fairly stable. National Dairy, Finishing and Forestry prices per ha for the 3 months to June 2017 nudged slightly higher compared to the same period in 2016. Arable, Grazing and Horticultural land prices softened, although this is probably more a reflection the type of sales transacted rather than any overall trend.
In terms of the number of farms sold nationally, the latest REINZ data shows 1,784 farms were sold in the year to June 2017, 2.6% more than the previous year. Specifically, 37% more finishing farms, 27% more dairy farms and 12% fewer grazing and 16% fewer arable farms.
Eight regions recorded increases in sales volume for the 3 months ended June 2017 compared to the 3 months ended June 2016. Otago recorded the largest increase in sales (up 13 sales), followed by Gisborne (up 9 sales) and Southland (up 7 sales).
Further analysis of the prices per hectare achieved for different types of rural land in Otago shows solid growth for Arable, Dairy and Finishing land for the 3 months to June 2017 when compared to the same 3 months in 2016. On an All-Farms basis current prices are also well ahead of the 10 year historic average. Grazing and Arable are the only land types where prices still remain below the 10 year average.
Overall sales of rural property in Otago totalled $371 million for the 12 months to June 2017, up 57% over the previous year. Clutha District dominated with 38% of sales, followed by Waitaki with 30%, Dunedin City (19%) and Central Otago with 13%.
Transactional sales levels across all Districts remain below those achieved prior to the GFC although they have been trending higher over the past 4 quarters to March 2017. Central Otago was the only exception.
Lifestyle blocks continue to make in-roads into areas that were traditionally sheep and beef farming. This trend is likely to continue as more people discover the attractions and ‘quality of life’ benefits that living amongst spectacular rural landscapes and vast open spaces can provide.
REINZ data for the 3 months to June 2017 points to a marginal softening in median lifestyle prices in Otago to $502,500, down 3.4% when compared to the same 3 months in 2016.
Encouragingly total lifestyle sales in Otago were up 19% to $190 million over the 12 months to June 2017, compared to the previous year. Sales activity was pretty evenly split between Central Otago (1/3), Dunedin City (1/3) and Waitaki/Clutha (1/3).
The most popular price bands across all Districts over the last year were $0 to $250,000 (38%) and $250,000 to $500,000 (30%). The only District to record any $1million+ sales was Dunedin City where lifestyle lots within close travel proximity to central Dunedin held a premium.
Otago Lifestyle Sales 2016-2017