'Disappointing' rural prices blamed on lending squeeze

Lending policies and finance availability are determining rural property values rather than farming returns, says Real Estate Institute president Peter McDonald.

"It should have been a good year, with the second-highest milk solids payout ever, but sales of dairy farms have been disappointingly low because of the lack of confidence among lenders," McDonald said.

The median dairy farm price for the three months to May was $3.7 million, compared with $3.75 million for the same period last year, while the number of sales was 42, compared with 62 last year.

"Prospects for dairying have never looked better ... and we need to see consistent investment," McDonald said.

"It would be concerning if the lending attitudes currently preventing New Zealand farmers buying into dairy properties at reasonable prices should suddenly change and cause another market spike, like we saw in 2007, if lenders were to decide they want to invest in agriculture again."

The Ministry of Agriculture and Forestry this week projected a milk price of $7.21 a kg of milksolids by the year ending May 2014.

Dairy giant Fonterra is forecasting the milk-price part of its payout for the 2010/11 season at $6.60 a kg, as opposed to $6.10 for this season and a record $7.59 in 2007/08.