Rural Property Pulse_Spring 2016 edition

Rural Property Pulse Issue 24 | Spring 2016

Contents Inside > Re-emergence of positivity signals a lively spring for rural property > Promising spring ahead for most of the country > REGIONAL UPDATE > HEARTBEAT – booming lifestyle and residential markets overspill into rural in some regions > PGG Wrightson increases earnings, despite tougher trading conditions > Corson hybrids perform in maize performance trials

Back > A closer look at sectors

Helping grow the country

Re-emergence of positivity signals a lively spring for rural property Spring is traditionally the busy time for rural property. This year, farmer confidence in the dairy sector will be critical to how the spring selling season progresses.

Has dairy turned the corner or do farmers still have more pain to endure before the present cycle trends upwards?

Some farmers reacted immediately to the Global Dairy Trade’s recent movement and Fonterra’s payout announcement. Directly after the most recent auction, our dairy specialists took plenty of calls from farmers enquiring about buying and selling land, suggesting farmer sentiment is starting to move from ‘glass half empty’ to ‘glass half full.’

Many have held off buying or selling property, waiting for returns to rise again. With early signals that this may finally be happening, optimism is beginning to grow.

Is that sustainable though?

From what PGG Wrightson’s Livestock team reports, the answer is positive. Dairy heifer trading has increased, the market for weaned calves is rising and in-milk cows are in demand. Most dairy farmers went into winter with low stock numbers; many now want to enlarge herds.

Stories emerged through the winter about mortgagee sales and banks forcing farmers off the land. That is not evident in our business.

Even when returns are at their highest, a few farmers always need to sell property under bank pressure. However, while discussions around managing costs and debt ratios have increased, the number of forced dairy farm sales is presently no different from where it generally is.

Our PGG Wrightson Real Estate intelligence, backed by REINZ statistics, suggests dairy farms are selling between 10 and 15 per cent below their peak of two years ago, although that discount is greater in some parts of the country. That said, with few sales to report, gauging precise values is difficult.

be realistic and put themselves in the minds of potential purchasers. Local buyers have been in the ascendant in recent years. This spring, expect larger farmer entities and corporates to become more influential.

Dairy aside, buoyant exports are driving various other sectors. Kiwifruit property is building on autumn’s record values of over $400,000 per hectare for green kiwifruit and around $700,000 for gold. Sales of Hawke’s Bay apple orchards are booming between $80,000 and $100,000 per hectare.

Viticulture land values keep climbing, with Marlborough’s developed blocks selling at around $180,000 per hectare, while one vineyard sold recently in excess of $250,000 per planted hectare.

Some outstanding sheep and beef listings are coming to the market, including hill country properties with high carrying capacity. One North Island PGG Wrightson Real Estate salesperson has signed up spring listings worth over $50 million, while quality listings across all sectors are in prospect throughout the country. Vendors are upbeat, although only time will tell whether listings convert to sales. Meanwhile, lifestyle property sales are likely to remain at record levels, with that sector’s only concern being the possible shortage of stock to sell.

With confidence in dairy apparently beginning to re-emerge and going from strength to strength in other sectors, a lively spring rural property market is in prospect, in what is traditionally the most popular season to sell a farm.

Entering a more positive phase, those planning to transact dairy property need to

Peter Newbold General Manager PGG Wrightson Real Estate Limited

Rural Property Pulse is published quarterly by PGG Wrightson Real Estate Ltd, PO Box 292, Christchurch 8140.

The information provided in this publication is intended to provide general information only. This information is not intended to constitute expert or professional advice and should not be relied upon as such. Specialist specific advice should be sought for your particular circumstances.

Licensed REAA 2008

Promising spring ahead for most of the country Economic and climatic factors both point to a dynamic spring livestock trading season, although the shortage in supply could thwart the ambitions of some farmers.

Winter was kind to most regions, with the exception of the continuing dry in North Canterbury, now into its third year, and the severe early August storms that hit parts of the East Coast, Hawke’s Bay and Taupo.

Elsewhere a mild, early spring bodes well for an abundant season. Much of the North Island, Otago and Southland have good growing conditions and should be set for a productive season ahead. However, parts of Canterbury need plenty of spring rainfall, otherwise farmers will be keeping stock numbers to a minimum for yet another year.

During a traditionally quiet period for livestock trading, prices have been good, with store lambs fetching between $2.80 and $3.00 per kilogram liveweight, store cattle generally ranging from $2.70 to $2.90 per kilogram, and better bred cattle exceeding $3.00.

Those selling surplus stock, store lambs and dry ewes organised themselves early in the winter, selling then, meaning demand for those categories became difficult to meet as spring approached. Premium prices are therefore being paid for anything that is available.

Repercussions from the dairy downturn continue in various directions. With beef doing well, more bull calves than normal are being reared this year, both by dairy farmers and professional calf-rearers, the former eyeing a way to help meet their shortfall. Beef herds are being rebuilt, which is unusual over the last ten years, with cattle retained on the back of good prices. Where farmers operate sheep and beef, a changing balance, with a shift from the former, in favour of the latter, has become common.

As the improved Global Dairy Trade auction and Fonterra’s increased projection gradually return a cautious confidence to the sector, farmer sentiment is moving from ‘glass half empty’ to ‘glass half full’ mode. Illustrating this shift, trading of dairy heifers has increased, with the market for weaned calves also rising.

Dependent on climatic conditions, in-milk cows are also in strong demand. Most dairy farmers went into the winter with low stock numbers, and will look to boost herds if the climate and future projections remain favourable. A few dairy herds listed for 1 June 2017 sale are also now being offered in various regions, with no contracts confirmed prior to the start of spring.

This report was prepared in consultation with PGG Wrightson’s Livestock team.

Regional Update Northland

Northland rural property was heavily sought after through the winter, with listings selling readily. As a consequence, fewer farms than usual are likely to be offered to the spring market, although demand remains consistent and those farmers who decide to list land should encounter a favourable reception.

In the wake of heavy demand for Auckland residential property, Northland’s similarly ebullient lifestyle and residential markets are in turn influencing the rural sector. Commercial and industrial purchasers are looking to acquire land, including farms. Northland farms closer to Auckland, particularly with potential for subdivision, are highly sought after. Northland dairy properties have not been subject to the downturn-driven discounts seen in some other regions, with farm sales continuing to range upwards from $12,000 per hectare. Meanwhile, two sheep and beef units, of 318 and 280 hectares respectively, sold strongly late in winter.

Waikato

From May to July 2016, 44 Waikato farms sold, compared with 42 for the same period in 2015. Ten dairy farms sold this year, down from 12 last year. Land value of well-located small blocks increased noticeably, with a number making over $100,000 per hectare.

A busy spring awaits Waikato’s rural property market. Despite dairy’s travails, this is not due to vendors’ financial stress. Deriving from Auckland’s hugely positive residential property market, Hamilton’s lifestyle and residential sectors are buoyant, which is rippling out to lifestyle properties and small blocks elsewhere in the region, even spilling into some farm purchases. Breeding and finishing properties, ranging from 300 to 1,400 hectares, in various locations across greater Waikato, are likely to come to the market in October and November, and should meet an enthusiastic bench of purchasers, although may not fully satiate prevailing demand.

Bay of Plenty

Nelson and Marlborough

Hawke’s Bay

Canterbury

Kiwifruit plays an influential role in the Bay of Plenty. With substantial demand for orchards and continued escalating prices, the region’s rural property market is vibrant, and likely to remain so through and beyond the rest of this year. Winter is traditionally a quiet time for orchard transactions and, compared to last winter’s listings for horticulture property and other rural land, were light leading into spring. As elsewhere, Bay of Plenty dairy property activity was also quiet during the winter, although that could change during the coming months, as some farmers look to test the market, appraising their options and considering whether now is a good time to exit the industry. Recently improved dairy projections could hasten this inclination, particularly among those farmers who have delayed selling while their sector has been at a low ebb.

A shortage of listings left Hawke’s Bay’s rural property market with little momentum through the winter. One exception was a 295 hectare bareland property just south of Hastings, predominantly medium to easy hill country, which sold for just under $9,000 per hectare. A number of attractive listings scheduled for presentation to buyers in the spring should gain interest and energise the local market. These include favourably located intensive sheep and beef and cropping farms in excess of 600 hectares and ranging up to 1,200 hectares. Potential buyers in the region include investor syndicates, who are focused on purchasing a range of properties or looking for farms capable of multiple land uses, which might include deer, forestry, manuka honey and cropping, as well as sheep and beef.

Properties worthy of their consideration will come to the market during the spring.

Wairarapa and Manawatu

Through the winter, demand for Wairarapa and Manawatu fattening and hill country properties remained strong, outweighing the stock of such properties available for purchase. Owners are content to sit tight and capitalise on good farming conditions, even when the prices their farms would probably command have some attraction. With little evidence of owners deciding to offer farms for sale, this situation is likely to continue in the spring. A sellers’ market is therefore expected to prevail, with demand from well-resourced buyers remaining unsatisfied. Meanwhile, the relatively small number of Wairarapa and Manawatu dairy farms listed for sale is also attracting interest, although a gap in value expectations between vendors and purchasers means that transactions are stalling or taking time to negotiate. If positive recent trends in the dairy sector are sustained and confidence grows, this perception gap may close in the coming months.

Unlike other eastern districts, much of Marlborough received sufficient rainfall through the winter to set up farms well for spring. While few Marlborough sheep and beef farms are likely to come to the market over the coming months, those that are selling are priced at around $1,100 per stock unit. Nelson, meanwhile, has some good dairy farms for sale, although listings in general, across all farm types, are in short supply. Plenty of buyer enquiry is gravitating towards the vibrant viticulture market. Vineyard values are currently around $200,000 per hectare, while a Rapaura vineyard made in excess of $250,000 per planted hectare in the autumn. A 261 hectare Awatere Valley property adjoining Seddon changed hands in July for $4.35 million and will become one of the province’s last remaining conventional sheep and beef farms to be transformed into vineyards.

Recent significant farm sales in North Canterbury reflect enthusiasm for sheep and beef. These include 909 hectare Okuku Pass Station, 1,795 hectare Mt Lawry Station, and 958 hectare Hitchin Hills. All sold in winter at or above $1,000 per stock unit carrying capacity. While farmers are wary of continuing dry conditions, sufficient early spring rainfall should bring more quality sheep and beef properties to the market. Although, in comparison, the region’s dairy sector activity was subdued through winter, with listings scarce, a 220 hectare Culverden dairy support farm offered for sale in mid-August has attracted strong buyer interest and should give the spring market a clear signal as confidence in dairying gradually improves. Depending on further positive signs for the sector, other Canterbury dairy property listings may follow in the spring. Firm buyer interest remains, exceeding the supply of dairy properties for sale.

West Coast

A cold, wet winter and little respite on the payout projection provided the dairydominated West Coast with scant cause for optimism. While forecast returns improved late in winter, sustaining that over another few auctions is necessary before farmers change their outlook. Although plenty of West Coast dairy farms are listed for sale and a market of interested buyers sits in wait, the latter are focused on bargains and, as at early spring, vendors were not prepared to adjust pricing expectations. Currently, these sit between $20,000 and $25,000 per hectare for Hokitika farms, and $15,000 to $20,000 per hectare in South Westland. Historically a good location for first farm ownership, lower interest rates and lower entry capital requirements still present opportunities on the West Coast for those wishing to relocate from Southland or Canterbury.

Mid and South Canterbury

Mid and South Canterbury’s rural property market had a traditional subdued winter. Sales included a large Waimate dairy farm and a support property, sold by the same vendor, and a 240 hectare Fairlie grazing farm. A 212 hectare Mid Canterbury dairy farm changed hands at $43,396 per hectare. While grazing properties are firm on recent values and selling quickly, dairy farms are between 10 and 15 per cent below the peak prices of two years ago.

Perennially in demand, sales and new listings of Mid Canterbury arable properties see values for these sought after farms firm between $47,000 and $50,000 per hectare. During the spring, the market in the region should become more active, with listings increasing. However, particularly where dairy land is concerned, buyers remain cautious and will require more positive signs before confidence properly resumes.

Otago

Otago experienced a relatively mild winter, with snow restricted to the high country. As with other regions, spring-like conditions arrived early in mid-August. Real estate activity throughout the province was slow, with few rural property sales through the winter and spring listings not particularly evident. As always, the importance of commodity prices on the rural property market was underlined.

Although dairying remained in limbo through the winter, this showed hints of changing as the international marketing scene grew more positive. Spring will testify whether those hints amount to anything more substantial.

Quality sheep and beef property, to satisfy a sound market outlook, is in particularly short supply, and anyone who lists these farms in Otago in spring should encounter a favourable reception. Meanwhile, as in many other regions, Central Otago lifestyle property is in great demand.

Southland

Rural property activity in Southland declined markedly around two years ago when the dairy payout dropped. That fall appears to be levelling off, with 106 sales of Southland/West Otago rural properties over 20 hectares in the 12 months to mid-August, compared to 111 for the period to August 2015. That 12 month period included 14 dairy farm transactions averaging $34,800 per hectare, compared to 25 in the previous year at $39,500 per hectare.

In a deal believed to be worth $60 million, the NZ Super Fund recently purchased seven Southland dairy farms. With continuing low interest rates, a steady currency and an upturn in fortnightly Global Dairy Trade auctions, confidence may revive for the upcoming spring market. More Southland farms should come to the market this spring, which is likely to generate genuine interest from buyers ready to commit.

Heartbeat – booming lifestyle and residential markets overspill into rural in some regions While the rural property market typically slows through the winter, as it did this year, the situation in the lifestyle and residential property sectors is at an unprecedented level.

Sales of small blocks and provincial town residential properties are at unprecedented levels. Demand, sales volumes and values are all off the charts.

Why this is happening should be evident to anyone who has picked up a newspaper or tuned into a news bulletin recently and seen or heard what is happening to Auckland property.

Many people are taking advantage of the booming metropolitan market to exchange suburbia for some good rural dirt, with plenty of change left in their back pockets.

This effect is most noticeable around Auckland, although demand for provincial residential and lifestyle property goes beyond the influence of the metropolis.

In Waikato, nine of the last 12 months set a new record for that particular month for the volume of lifestyle property sales over the last 20 years. Compared to the same period the previous year, in the three months to July 2016, Real Estate Institute (REINZ) figures indicate the median price of Waikato lifestyle property rose by 13.1 per cent.

Further north, Dargaville illustrates how strong this market is: while for the past eight years, eight to 12 Dargaville properties would typically sell per month, in both June and July 2016, sales exceeded 30 properties in each month.

Meanwhile, in Auckland itself, comparing the three months to July 2015 to the same period in 2016, the REINZ median price for lifestyle blocks increased by 33 per cent from $947,500 last July to $1.26 million this year.

Elsewhere, other factors are at work.

Marlborough’s lifestyle market, for example, is buoyed by the wine industry’s success, which is creating excellent employment opportunities and leading to strong interest in lifestyle properties up to $600,000.

In the Bay of Plenty, the lifestyle sector can cross over with the kiwifruit industry, an orchard adding appeal, not to mention income, to a property.

Hawke’s Bay’s pip and stonefruit orchards provide a lifestyle opportunity, with owners prepared to pay a premium for prime horticultural property with houses or building sites, then leasing their productive land to exporters.

Compared to the previous 12 month period, the volume of Southland lifestyle property sales for the year to 30 June 2016 increased by 18 per cent. Values rose by 2.5 per cent over this period.

Even rural property is benefiting, at least in some localities, particularly around Auckland, Tauranga and Waikato.

As the Auckland urban boundary envelops surrounding rural land, values have increased.

Land owners benefiting from their new found equity have reinvested into larger wellestablished grazing and dairy farms, albeit beyond Auckland’s commuter range, leaving them with equity still in the bank.

Farms with multiple titles are particularly sought after by buyers seeking quick and easy gains from a straightforward subdivision. Farms in the likes of Rodney, Warkworth and Wellsford are all attracting this interest.

With beef strong and most other productive sectors also doing well, the residential and lifestyle sectors are serving to buttress the rural property market against the downturn in dairy profitability. While lifestyle and residential property remains so rampant, dairy property values might not be unduly affected, particularly if the recent Global Dairy Trade auction gains are sustained over the next few months.

Like other cycles, lifestyle and residential property will not continue to boom indefinitely.

How and when that turnaround comes is impossible to predict. If it is sustained until dairy cashflow recovers, dairy farm values are unlikely to drop any further than the 10 to 15 per cent that they have to date.

PGG Wrightson increases earnings, despite tougher trading conditions PGG Wrightson Ltd recently announced its third consecutive year of earnings growth.

For the year ending 30 June 2016, the company achieved operating earnings before interest, tax, depreciation and amortisation of $70.2 million, up from $69.6 million for the prior financial year. It will pay a fully imputed dividend of 2.00 cents per share on 4 October 2016, bringing the total fully-imputed dividends paid for the year to 3.75 cents per share.

Company Chairman, Alan Lai said: “The Board and I are very pleased with the operational performance of the company. This has led to an outstanding financial result, given market conditions. The progress made since 2013 is worthy of praise. In three years, PGG Wrightson Ltd has grown Operating EBITDA by around 50 per cent. This, combined with a recovery in agricultural markets, will provide a strong platform for further growth.”

Corson hybrids perform in maize performance trials Farmers wanting to select the best maize hybrid should consult the Maize Performance Trials (MPT), which provide independent evaluation from its recently released second year of results.

Managed by the Foundation for Arable Research (FAR), the New Zealand Plant Breeding and Research Association (NZPBRA) and industry, the trials are conducted in a number of maize growing areas, comparing the hybrids of three participating seed companies with the hybrid considered industry standard in each area.

All maize seed companies are encouraged to be involved so that hybrids can be compared on the same basis. This evaluation approach is similar to the trialling of cereal cultivars through the Cereal Performance Trials (CPT) and grass varieties through the NZPBRA National Forage Variety Trials (NFVT).

Chief Executive, Mark Dewdney described the result as outstanding: “This increase was achieved during a much tougher market environment than the previous year. I’m absolutely delighted with this result.”

In terms of performance of the larger business units, Operating EBITDA for Seed & Grain increased 10 per cent and Retail increased seven per cent, while Livestock decreased one per cent.

Those parts of the business most exposed to dairy had the toughest year, and more cautious spending from dairy clients was the main reason for the small reduction in group revenue.

Increased Operating EBITDA contributed to a net profit after tax of $39.6 million.

MPT results are published in the FAR Hybrid Evaluation book, see www.far.org.nz/research/maize Guy Mason, Sales Manager for Corson Maize Seed, is an enthusiastic supporter of the MPT, “It is great to have these trials conducted and run across so many sites ensuring farmers are getting local and independent information to help them make their hybrid selection decisions. The fact that Corson Maize Seed hybrids have performed so well across the two years of trials is great support for our own trial and evaluation work. This is really useful as it helps to validate the processes we are using in generating the maize hybrids we bring to the market.”

Reliable top performers in the Corson Maize Seed range include maize silage hybrids C78-S8 and Z71-F1, dual purpose hybrids N39-Q1 and C56-C4, and the grain hybrid N51-N4.

These hybrids performed strongly in the MPT, mirroring the company’s own trials and corroborating grower feedback.

This season, Corson Maize Seed has released three new hybrids: Afinity, Plenitude and CMS Comet, which also performed strongly in MPT. For more information on Corson Maize Seed hybrids, visit www.corsonmaize.co.nz This report was prepared in consultation with PGG Wrightson Seeds Limited.

A closer look...

Sheep and Beef

Due to a higher than average seasonal clearance of available farms, larger drystock properties are currently in short supply.

Virtually all sheep and beef farms marketed during winter were sold or under offer by mid-August. Underpinned by beef’s ongoing strength, property listed in spring will be avidly welcomed. Previously regarded as unproductive, hill country properties in some parts of the North Island have attracted unprecedented demand from apiarists motivated to grow manuka. Five farms in the Retaruke district of Ruapehu sold recently for manuka, ranging from 400 to 1,600 hectares and priced between $4,000 and $4,500 per hectare, well up on expectations. Elsewhere, a 600 hectare North Waikato property sold for around $12,500 per hectare in May and a similarly located 450 hectare property sold for almost $8,000 per hectare in August, indicating a general lift for drystock farms.

North Island Dairy

Through the winter the North Island dairy property market was patchy. Aside from a sprinkling of private sales, little of note occurred as the weather, low income levels and the prospect of bank interest rates dropping still further conspired to discourage activity. As prospects are looking slightly better, this is set to change in spring with a steady flow of new listings likely to come forth over the next few months. Included among these is a variety of North Island dairy properties, ranging in annual production from 80,000 to 500,000 kilograms of milksolids.

These will attract interest and could be sufficient to remotivate the market. With the supply of good listings likely to improve, renewed demand for North Island dairy farms should follow as global markets for milk product, and farmgate returns gradually improve.

have eased between seven and 12 per cent since the 2014 market peak. In the past year, Southland sales fell about 30 per cent in volume and about 12 per cent in value. However, the NZ Super Fund’s purchase of seven Southland dairy farms indicates buyer confidence, while a 200 hectare Mt Somers grazing property selling at approximately $35,000 per hectare provides a Canterbury market benchmark. Canterbury dairy farms selling in spring range from 120 to 240 hectares. If increased payout projections are sustained, farmer confidence will lift, which should increase spring property activity.

Viticulture

With viticulture exports on a high and winery expansion under way, there is a huge appetite for Marlborough vineyard land. This is likely to continue in spring as listings are short, resulting in properties selling before they are even advertised. As larger wine companies enlarge and established growers reinvest in land, the market is buoyant. Investors and corporates with wine interests are looking for either greenfield properties or established vineyard sites or both, with 50 hectares the minimum requirement.

Strong viticulture sales include Straits View Farm, an Awatere sheep and beef property, purchased by neighbour Yealands Estate, one of the few remaining Marlborough pastoral properties with potential to convert to vines. Meanwhile in Hawke’s Bay, planted and producing vineyards are selling between $90,000 and $120,000 per hectare, values that have remained firm for the past 12 months.

Kiwifruit

A limited number of winter kiwifruit property listings sold quickly. One indicative sale included a four-bedroom home, 1.15 canopy hectares of gold kiwifruit and 4.5 canopy hectares of green.

This $3.68 million August transaction suggests autumn’s values prevail, at over $400,000 per hectare for green kiwifruit and around $700,000 for gold. Although speculation suggests green South Island Dairy kiwifruit orchards’ values have reached their South Island dairy property sales have upper limit, as Zespri is set to issue licences for dropped as the payout has fallen. When 400 hectares of gold kiwifruit in 2017, some optimism is low, vendors are not anxious orchards could sell for conversion to gold. A large to sell, while purchasers are also reluctant, Te Puke orchard likely to go to the market in suspecting values could soften further. early spring will indicate whether gold kiwifruit Values of transacted Canterbury dairy farms property continues increasing in value. While

dairy’s apparently improving prospects may draw off some of the investment interest that has helped drive kiwifruit’s record values over the past 18 months, overall prospects look positive for another strong season.

Pipfruit and Stonefruit

Strong export markets for apples are encouraging high levels of interest in Hawke’s Bay orchards. Land values sit between $80,000 and $100,000 per hectare. A 16 hectare bareland Clive property sold in August for planting into apples for $90,000 per hectare.

Returns are such that some vineyards in the region have converted to apples recently.

Demand for land suitable for pipfruit will exceed supply this spring. Whether orchard values rise any further depends on the optimism of growers matching that of processing companies and exporters. In some instances, orchard values are underpinned by demand for the lifestyle market, with purchasers buying prime horticultural property with houses or building sites then leasing the land to an orchardist. Depending on the location, this can create a premium of 10 to 20 per cent over the price a commercial grower might pay for the same property.

Cropping

Although listings of premium cropping farms are short, those that came to the winter market sold between $43,000 and $45,000 per hectare, up to 10 per cent below peak 2014 values. A surplus of feed barley and wheat, presently in silos and unwanted by dairy farmers who have trimmed their inputs, has caused this price reduction. Arable farmers have little incentive to grow these crops and will plant clover, ryegrasses and vegetables instead. For the latter, arable properties with soils able to grow carrots, onions and potatoes remain highly sought after, commanding a premium of $3,000 to $4,000 per hectare compared to those that only grow cereals.

Dairy payout projections will influence the upcoming market for cropping properties.

Arable farmers are also wary of nitrate leaching regulations, which still have an element of uncertainty that will influence property values.

www.pggwre.co.nz