Confidence in Taranaki’s key primary industries – dairy and beef and lamb production – has picked up strongly over recent months. 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.
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. The latest Federated Farmers survey shows confidence amongst local farmers to be increasing in respect of most issues, with more respondents expecting general economic conditions, farm profitability and farm spending to improve or increase as at July 2017 than was the case in January. There has also been a significant increase in the number of farmers who expect to be in a position to reduce debt.
Strong global prices for NZ’s key rural commodities are boosting confidence amongst farmers and helping underpin rural property prices and turnover.
The latest 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 Taranaki 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.
Values Stable as Activity Lifts
Despite dairy company payouts being at below the average breakeven level for farmers in both the 2014/15 and 2015/16 seasons land values have remained fairly stable over recent years. As the table below shows, median land values for all farms retreated by approximately 14% over the three months to June 2016 compared with the same period in 2015. Dairy land values fell by just 9% over the same period before rebounding during the second quarter of 2017.
Prices have also been supported by the fact that the sheep and beef sectors have enjoyed strong market conditions over recent years. According to Beef and Lamb NZ figures, the average economic surplus generated per hectare in Taranaki – Manawatu farms was $183.41 in the 2014/15 season and $161.21 in 2015/16. While the forecast surplus for 2016/17 is lower at $111.78 the surplus remains well ahead of those recorded in five of the last 10 seasons, during which the Average surplus has been just over $98 per hectare.
Land values alone however do not necessarily reflect the state of the market, as values can be skewed if the profile of farm sales changes. During market downturns demand for secondary quality farms generally falls away while there remains interest in better quality landholdings. As a result sales become concentrated at the higher quality of land, and therefore higher value sector of the market.
Sales activity therefore provides a more accurate gauge of the state of the market. As the graph below illustrates sales activity reached a cyclical peak in early 2014. Subsequently the number of transactions fell, tracking the downturn in dairy commodity prices at Global Dairy Trade Auctions. Over the first half of 2017 sales activity has rebounded as confidence has returned to the sector.
The lift in commodity prices is likely to add to transactional activity In two ways, firstly by increasing the pool of potential purchasers and secondly by broadening the quality of farms which meet buyers requirements.
Sales Dominated by Dairy and Grazing
Over the 12 months to June 2017 sales of dairy and grazing properties dominated sales activity within the region. Real Estate Institute of New Zealand (REINZ) sales data showed there to have been 34 sales of dairy farms and 35 grazing properties. The 69 sales across the two primary sectors accounted for just over 75% of sales with finishing farms (15 sales) comprising a further 16%.
Dairy Sector Rebounding
As stated above confidence within the Taranaki rural sector has lifted appreciably over recent months driven by improving prospects for the dairy sector. The Global dairy trade index has increased by approximately 108% since reaching a cyclical low in August 2015.
Taranaki is one of the country’s leading dairy regions with just under 10% of the national dairy herd. Only the Waikato, South Canterbury and Southland have greater herd numbers.
Taranaki dairy farmers are amongst the most efficient in the North Island. LIC statistics show that of 38 North Island districts monitored, South Taranaki farms produce more kilograms of milk solids per effective hectare than all but five others. On the basis of average.
Total Sales Values
The lift in sales volumes which has been apparent over recent months has seen total sales values rising reversing the trend which has been in play since 2014. In the year to June 2017 the total value of dairy farm sales reached $143.5 million, an increase of approximately $13.5 million or 10.5% over the 12 months ending June 2016 total. The South Taranaki District was the largest contributor to the total with the district’s sales value reaching $83.2 million over the year to June up nearly 15% on the year earlier.
Taranaki farming is dominated by the dairy, sheep and beef sectors however, other industries, previously considered as niche players are experiencing growth as market demand for different products grows.
Total export revenues for New Zealand honey reached $315 million in 2016 and MPI forecasts suggest that this could grow to $370 million by 2021. While export revenues are expected to fall in 2017 this is a result of lower volumes, the result of challenging climatic conditions, as opposed to the value of the product. In fact, export values have increased by 8% over the last year to $38.50 per kg. Record values have now been recorded in each of the last eight years.
Expansion within the local Taranaki market has seen land values increasing. A benefit of honey production is that the land on which hives sit does not need to be of high quality, despite this however, purchasers are now paying prices equating to between $4,000 and $5,000 per hectare. As recently as three years ago the same land may have commanded values of between $1,000 and $1,500 per hectare and would have been used predominantly as hunting blocks.
The poultry industry has also witnessed rapid expansion within Taranaki over recent years. Between 2014 and 2016 $65 million-worth of chicken-breeding buildings were built, and the pace of growth looks set to continue. At present development of approximately 22,000m2 of greenfield free range capable poultry sheds is underway in the Midhirst area of central Taranaki, the development will comprise eight sheds. Another similar type of development is in the planning phase and a further two of similar size have recently been commissioned in North Taranaki.
Some sheds, once developed are leased back with rent set at approximately 8% of cost to develop. A majority of sheds though are owner operated and generate capital values of between $700 and $1,000/m2 depending on shed standard, age and corresponding payment schedule.
Sheds are graded with there generally being three different tiers. Net capitalisation rates are now 7 – 9% depending on shed standard and therefore income.
Lifestyle Sales Surge
In line with the wider residential market, lifestyle property sales have enjoyed a strong run over the last two years.
The regional sales count reached a new peak in the second half of December 2016 with 132 properties transacting up from the cyclical low of 62 recorded in the final 6 months of 2010. Momentum was maintained in the first half of 2017 during which 127 sales were reported to REINZ. The rolling 12 month total of 259 sales is the highest recorded across the region this century.
The half yearly median sales value can be quite volatile as lifestyle property sales combine bare land sales with improved properties and therefore figures can be skewed depending on the relative weighting of the two within 6 monthly sales samples. Setting this aside however, there has been a clear trend of value appreciation over the last two years. The median sales value in the June 2017 half year period reached $515,000 an increase of nearly 8.5% compared with the same period in 2016.
Sales Count Highest in New Plymouth District
As the chart below illustrates the New Plymouth district generates the highest proportion of sales across the region. In the 12 months to June 2017 65% of lifestyle sales occurred within the district, compared with 19% in South Taranaki and 15% in The Stratford district. A concentration of lifestyle sales close to a region’s main centre is quite common as it provides purchasers with the ability to live within rural surroundings while being close to the employment opportunities which cities provide.
Unsurprisingly given the above it is lifestyle property within the New Plymouth district which generates the highest median values. In the six months to June 2017 the median sales price across the New Plymouth district was $612,500 compared to $430,000 in the Stratford district and $369,000 in South Taranaki.
Development Activity Continues
Resource consent activity again supports the narrative of growing confidence within the local farming sector.
After two years when the number of consents for farm buildings sat at below average levels they have rebounded over recent months. In the year to July 2017 321 consents were issued against an eight year average of 298.
The consents were for buildings with a combined floor area of 46,175m2 and a value of $$16,320,000.