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Rural Outlook Spring 2020


Property Brokers 31 Oct 2020

Blog image_Conrad Wilkshire_SpringSpring always brings a lot of anticipation for what the new season holds in store for us all in the primary sector

Added to the mix this year has been the post- Covid economic response and a general election. Farmer and grower confidence surveys of late have not been favourable as the sector absorbs a raft of recent changes from freshwater standards to constraints with seasonal employment, to name a few.

In terms of direct rural property impacts, restrictions on foreign ownership of rural land look set to remain, but importantly, the sinking lid on rural lending is expected to moderate as the sector benefits from positive re ratings.

Producer confidence is likely to improve though, as lower interest rates and improved commodity returns are reflected in the year-end accounts.

The big difference this season is an emerging trend that rural land investment yields are increasing, while bank deposits and wider NZ investment yields are trending down.

The opportunity to acquire quality rural assets, at a reliable cash return, is looking positive across the board.

The strength of our rural sector, and the impact on provincial New Zealand, was highlighted with Fonterra’s final Farmgate Milk Price for the 2019-20 season of $7.14/kgMS, and a dividend of 5 cents per share. The highest pay-out performance since the 2013-14 season. Fonterra paid $11 billion-plus to its farmers last season, which when combined with this year’s advance is assisting our local provincial economies greatly. The forward outlook for the current season continues to improve too.

Sheep and beef producers continue to trade profitably on prices more aligned to the 5-year average than last year’s strong schedules. As we navigate dire wool prices and the uncertainty with chilled trade, it is clear that this season is far from typical. However, the top of mind conversation nationally just now, is the very low annual rainfall.

So, while it’s been a kind winter climatically; many farmers now appear to be hedging their bets for the new season, cutting back trading stock to build some feed buffer back into the system.

Horticulture, for its part, is set to spearhead New Zealand’s post-pandemic recovery. Employing 60,000 people in an industry worth $6.39 billion in 2019, the horticulture industries, including apples and pears, kiwifruit, avocados, and vegetables, are forecasted to grow to $10 billion by 2030. We continue to see record prices attributed to land going into horticulture.

Rural property sales above 20 ha, sold on the open market, 12 months to 31st August 2020 at 709 sales was back again on the prior year for the third year running. Dairy farms sales over the same period on the same basis totalled only 89 sales, and that’s despite the dairy farm median sale price back approx 20% on the prior year at $3.23m.

Spring 2020

The dairy property story now is one of improving farm gate returns, but buyers are forward pricing the risks, and staying firm on acceptable cash returns (5-6%+) on bank budget guidelines.

All sectors last season were impacted by a moderated risk appetite to lend to farmers and growers. Dairy particularly was significantly impacted by the revised Reserve Bank policy settings, but as they often say in rural, ‘it’s a long road without a bend in it’.

The wheel is starting to turn, and our early sales results this spring, support the same conclusion. Those looking to take their properties to the market now have the benefit of last season’s results to set realistic price expectations.

We’re also likely to see an ongoing re-rating of the risks associated with our sector as debt continues to be repaid from profits.

The rural real estate market is resetting as farmers and growers look to grow their businesses sustainably in conjunction with a much stronger emphasis on the underlying cash returns.

Click here to read the latest Rural Outlook

PB Rural Outlook Spring 2020