The long term outlook for both the New Zealand and Southland rural sectors remain positive. Southlands sheep and beef sector is performing well and there are moves to diversify land use into new areas such as sheep dairying.
As stated above the national outlook for the rural sector remains positive. Despite the current challenges faced in dairy, most of NZ’s other major rural commodities are performing well. Fruit has been a stand-out up 31% in export revenues over the past 12 months to June 2016. Seafood and wine have also been strong performers with double digit revenue growth. Sheep and beef exports are holding firm with prices well underpinned due to relatively tight global supply conditions.
While the dairy export figures in the chart above reflect the challenging global conditions that have prevailed over the last 2 years, the latest Global Dairy Trade (GDT) results seem to point to the sector moving strongly back into recovery mode. The GDT’s overall index was up an impressive 12.7%, led by an 18.9% surge in Whole Milk Powder (WMP) prices to US$2,695/tonne. The result is the best since October last year, with the WMP price 43% higher than the recent lows in February 2016. The auction results were particularly impressive given Fonterra had put more volume of WMP on to the market than at any time this season, at 21,500 tonnes. Increased activity from both Chinese and South-East Asian buyers was evident, driving the lift in prices.
It clearly looks like the dairy market has turned a corner supporting the view of the Ministry of Primary Industries (MPI) regarding the short term outlook for dairy prices. In the latest 2016 Situation and Outlook report the Ministry forecasts a general stabilisation of dairy export revenues over 2016 and 2017 before a more solid recovery takes hold in 2018.
Rural property prices easing
The latest REINZ farm price data for the 3 months to June 2016 showed the NZ All-Farm median price per hectare fell 9.5% to $26,361 when compared to the same period in the previous year. The number of sales over the same period were also down marginally by 1.5%.
While the main talking point has been the recent fall in dairy farm prices, put into a 10 year historical perspective prices are still marginally higher. However recent turnover has fallen sharply as a stand-off appears to be developing between vendor expectations and buyer expectations.
Other than dairy, the situation is very different. Arable, finishing and horticultural property prices per hectare all remain above their 10 year averages. The number of sales are also holding up well.
The Southland rural property scene reflects many of the national trends mentioned. The regions All-Farm Median Selling Price per hectare was $22,414 for the 3 months to June 2016, down 21% for the same period in 2015.
The number of Southland All-Farm sales were also down 22% over the same period to 28 sales for the 3 months to June 2016. However since March 2016 monthly sales activity has been increasing steadily.
Drilling a little deeper Southland Dairy Farm prices recorded a 5% increase to $37,529/ha over the same period on very low volumes (3 sales for the 3 months to June 2016). The lack of meaningful dairy farm sales makes it difficult to assess where current “market” values sit. With this in mind the latest REINZ figures should be interpreted cautiously. Greater clarity in terms of dairy farm pricing should appear as we head into the prime rural selling season in October/November. In contrast to Dairy, Southland Grazing land continues to record reasonable levels of sales activity at lower prices.
Southland has experienced a sharp increase in dairy activity over the past 5 years (as did Canterbury and Otago) when compared to the rest of the country. Since 2009/2010 total effective hectares of dairy land in Southland increased by 22% from 170,000ha’s to 207,000ha’s by 2014/2015. The Invercargill region, in particular, experienced the largest conversion rate from 12,800ha’s to 19,100ha’s over the same period, a significant 49% increase. Total cow numbers in Southland have also risen 25% over the past 5 years to 573,000 with the Invercargill region again experiencing the strongest growth rate at 48% to 52,000 cows.
The banks remain supportive in what are clearly trying times for Southland dairy farmers. Most have continued to take a medium term view on the outlook for dairy and are actively assisting farmers in managing their cost base and working capital requirements.
The recent strong rebound in dairy prices at the latest GDT auction is certainly a very positive signal for farmers and encouragingly could be a key turning point for the sector.
Despite recent dairy challenges investment in value-add processing facilities is still occurring in Southland. A state-owned Chinese company – China Animal Husbandry Group (CAHB) – recently acquired a 71.8% stake in a yet to be constructed $200m dairy processing plant in Gore which is being developed by Mataura Valley Milk. On completion the new plant will manufacture infant formula, ultra-high temperature (UHT) cream and small amounts of skim milk powder, much of which will be destined for the China/Asian market.
Last year Blue River Dairy sold its Nith Street Invercargill processing plant and brand to Chinese company Blueriver Nutrition HK for an undisclosed sum with plans to add a second drier and up to $40m in new development. Beginning in 2003, Blue River has successfully converted three Southland sheep farms to sheep dairying, producing around 1,000 tonnes of sheep milk powder which they want to grow to 5,000 tonnes over the next few years. Sheep dairying is viewed as complementary to New Zealand’s traditional cow farming and can be conducted on land not suitable for dairy cows with less environmental impact.
Southlands Lifestyle prices have held steady at $355,000 over the past 3 months to June 2016 when compared to the 3 months to June 2015. The number of sales over the same period have risen to 70, up marginally from 67. Both Lifestyle prices and volumes remain above the 10-year average.
The most popular price bands for Southland Lifestyle properties are the $200,000 to $400,000 (33%) and $400,000 to $600,000 (32%) ranges. The lower end of the market $0 to $200,000 is also very popular. Above $800,000 the number of potential purchasers fall away.
Agency feedback points to growing interest in both lifestyle and traditional residential properties over the past few months as buyers increasingly take advantage of what are perceived as better value-for-money options in Southland compared to other regions of the country.
The favoured locations for lifestyle properties continue to be suburbs within Invercargill. Other areas of interest include Myross Bush, Makarewa, West Plains and Winton.
Southland Regional Lifestyle Sales – 12 months to June 2016