Few foreign buyers as farm prices fall

Dairy farm prices have fallen more than 20% year on year and continue to trend downwards, with some evidence would-be buyers are waiting in the wings for an even better deal.

From January to February, the overall number of farms sold has fallen 10%.

Surprisingly, overseas buyers are not circling to make a killing but there appears to be little reprieve on the horizon for the most indebted dairy farmers.

There were 10 dairy farm sales in Otago in the three months to February last year but only three in the same period this year, Real Estate Institute of New Zealand rural spokesman Brian Peacocke said.

"There's been a real tailing off ... Otago had just one dairy farm sale for each of December, January and February,'' he said.

Nationally, there were 1779 sales of all farm types in the year to February, up 1.7% on a year ago.

However, sales numbers plunged almost 11% when comparing 532 sales in the three months to January, followed by 474 sales for the three months to February.

Dairying made up 16% of all sales.

There were no dairy farm sales in Canterbury or the West Coast during February.

Mr Peacocke said the national year-on-year price plunge of almost 21% was correct but skewed because of a "huge spike'' in Waikato farm sales last spring.

However, Waikato aside, prices nationally would still have been down by at least 16%, he said.

"The hard question is how the banks are going to handle the delicate cases,'' Mr Peacocke said of the dairy farmers with the largest loans and least equity.

He was unaware of banks forcing outright mortgagee sales - "just one or two'' - but noted a large five-farm business in Murchison was placed in receivership last week.

He said banks did not want to run the risk of a run on farm sales "which would see values dropping all around''.

"The banks need to put limits on. They're saying to some farmers that an option [to service debt] may be to consider a sale,'' Mr Peacocke said, painting a picture of a more softly-softly demand, rather than outright foreclosure.

"Some people [buyers] are sound financially and are signed up but then not going through with the purchase, because of the uncertainty,'' he said of falling forecast payouts.

Overseas buyers were more interested in beef than dairy at present, and any dairy sale required Overseas Investment Office (OIO) approval, he said.

Mr Peacocke understood one OIO condition "being bandied about'' was a requirement to prove a 20% productivity gain could be made, which would be "too restrictive'' given the low payouts.

"Why would overseas buyers come in here [to dairying] when there is no scope for that productivity gain?''

Most sales were domestic, and "very often neighbour to neighbour'', with the more experienced and equity-rich dairy farmers able to expand their capacity he said, citing the majority of recent Waikato sales.

He said some buyers were holding back for lower prices.

"We're hearing that quite regularly from different areas. From a [buyers'] mood of optimism in spring, it has now turned to caution; waiting to see if prices settle further.''

It was now "very close'' to traditional farm-sale settlement time on June 1, but Mr Peacocke said with so few on the market, many sellers would now wait until spring to sell.

simon.hartley@odt.co.nz

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