Cream rises to the top of the dairy property sector

Bayleys Country Rural Manager Nick Hawken says rising dairy prices in the commodity market have made dairy land more attractive to buyers, including investment entities and private investors.

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Bayleys Country Rural Manager Nick Hawken says rising dairy prices in the commodity market have made dairy land more attractive to buyers, including investment entities and private investors.

Bayleys’ latest rural market update for the dairy sector indicates buyer confidence, sustained demand and a positive outlook for the next 12 months thanks to strong long-term milk prices and global demand for New Zealand products.

In the past fiscal year, Bayleys completed more than 100 dairy real estate transactions, more than a third of the total number of dairy farms sold nationwide.

Bayleys national rural manager Nick Hawken said figures from the Real Estate Institute (REINZ) showed the total value of dairy land sold across New Zealand had soared in the 12 months from April 1, 2021 to 31 March 2022, to reach $1.524 billion – more than double the value sold over the 2020-2021 period.

“A total of 40,958 ha of dairy land was sold nationwide in 2021-2022 according to REINZ,” he said.

“Bayleys transactional data shows that traditional dairy areas like the Waikato continue to dominate, but Southland and Canterbury have seen an increase and are now prominent in the national landscape,” Hawken said.

“Rising dairy prices in the commodity market have actively improved farm profitability, which has increased the attractiveness of dairy land to buyers, including investment entities and private investors who have diversified their portfolios to include dairy assets.”

Hawken said confidence was back in the market, both from the perspective of investors and lenders, with sophisticated market fundamentals coming into play.

“The dairy industry has been cash-starved for many years, but has delivered strong returns since 2019, largely due to high commodity prices, but supported by broader industry intelligence.

“Today’s dairy farmers have a much better understanding of how their day-to-day operations can impact the supply chain.

“Dairy investors continue to seek strong commodity prices and returns, but are also increasingly attracted to the underlying fundamentals of the industry, understanding that they are investing in a high value nutrition that has a long shelf life.

“As a result, there has been an increase in capital from the debt and equity markets into dairy products.”

From the perspective of investors and lenders, the spotlight remains on the environmental impact of the dairy industry and Hawken said proven stewardship is commonplace in the real estate market.

“At the time of the deal, dairy farms with a well-documented track record of environmental stewardship and a strong carbon philosophy will likely reap the rewards,” Hawken said.

“Dairy ownership as an asset class requires full buy-in from stakeholders, with banks reporting that an environmental farm plan to support lending will become mandatory within the next two years as the benefits of lending linked to the sustainability will become more prevalent.

“However, we must recognize that while on-farm returns appear positive, there are challenges in the wider market given inflationary headwinds, rising operating costs, staff shortages, interest rate uncertainty.

“The focus on the Future Maintainable Production Equation (FMPE) continues as margins are squeezed, but for now there appears to be freeboard above the waterline for most operators.

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