Rural servicing company PGG Wrightson has provided tangible evidence of just how quickly the brakes have been applied to the rural sector, warning of a fall in net earnings on the back of fewer property sales.
It announced yesterday net earnings for this financial year were expected to be in the range of $39 million to $45 million, compared with earlier forecasts of $46 million to $51 million.
In a statement, PGG Wrightson attributed the downgrade to less real estate business, with earnings from the division expected to be $11 million under budget and less than last year's figures by the same amount.
Earlier this month, the Otago Daily Times reported that the price of dairy land had fallen 10% to 15% over a period of several weeks and that some real estate companies had gone 10 weeks without completing a farm sale transaction, as vendors and buyers waited to see what was happening in the market.
Dairy farms that had been selling for $40 a kg of milk solids were now selling for $35 to $38 a kg milk solids.
Since then Fonterra has reduced its forecast payout for this season from $6.60 a kg m/s to $6 and its fair value share from $5.57 to $4.47 a kg m/s.
PGG Wrightson said total farm sales in the year to November 30 were 39% lower than for the same period a year earlier, while sales of lifestyle blocks over that period were 40% lower.
For the month of November, Real Estate Institute of New Zealand figures show a 64% drop in sales.
"The market outlook for the rest of the season is relatively uncertain, being dependent on a range of factors, including rural sector performance, interest rates, lenders' appetites for rural lending, currency, exchange rates and others," the company said in a statement.
PGG Wrightson's real estate manager, Stuart Cooper, said in an interview that more land owners than usual were deferring decisions or changing their minds after initially deciding to sell or buy.
It was symptomatic of the uncertainty that was evident in the wider economy, he said.
The PGG Wrightson statement said its real estate division was not alone in facing these issues and was performing as well as it could. Those issues did not affect the company's other divisions, most of which were trading either ahead of or on budget.
Even with the downward revision in earnings, the company was still performing well, it said.
For the year to June 20, 2008, PGG Wrightson recorded net earnings of $39.2 million, which was 35% higher than a year earlier. The revised earnings of $39 million and $45 million still represented an increase of up to 15%.
It warned that net half-year earnings, to December 31, would be affected by an 11% write-down in the value of its shareholding in NZ Farming Systems Uruguay, costs associated with terminating its partnership agreement with Silver Fern Farms and changes associated with the move to international financial reporting standards.
