Farm prices defy milk drop

Some economists say the Government may have to step in if milk prices don't pick up.

A Waikato dairy farm has broken through the $100,000 a hectare barrier despite milk dropping to less than $5 a kilo.

The continuing collapse of whole milk powder prices on the GlobalDairyTrade auction has failed to deter Waikato farm buyers from setting a new record pricing level for a dairy farm in the province.

The latest GlobalDairyTrade auction earlier this month saw the price of whole milk powder drop another 7.1 per cent. The drop was credited to China buying less product, combined with surging output in Europe, the United States and Australia.

Russia's ban on European cheese imports has also worsened the situation -- with European milk instead dried into powder and dumped into markets New Zealand usually dominates.

ANZ chief economist Cameron Bagrie said the low prices being achieved for whole milk powder could even necessitate the Government looking to intervene by adjusting either the official cash rate or the New Zealand dollar ... or both.

"One year of sub-par dairy incomes are manageable. Two years becomes problematic and will necessitate the shock absorbers (OCR and NZD) adjusting," Bagrie said.

However on virtually the same day the GlobalDairyTrade news was breaking, bidders at Bayleys' latest rural auctions in the Waikato ploughed in "boots and all" to three dairy farms up for sale -- breaking the $100,000 a hectare price ceiling in the province for the first time.

Bayleys Waikato rural manager Mark Dawe said per-hectare land values for dairy farms in the province were still being calculated at milk solid returns much akin to Fonterra's record $8 payout levels dating back to 2011.

"I don't expect this trend to change in the immediate future," he said.

"In fact, we understand that the Morrinsville property is the first Waikato unit to break the previous pricing ceiling of $100,000 a hectare.

"What we have noticed is that potential buyers are looking at how they can increase output on existing properties, which in many cases, would nullify any drop in payout levels and set them up to be ahead of the pack when payouts rise again ... which they will.

"Additionally, we are seeing 'old money' buying these farms. That is to say well-established families from within the region who have strong balance sheets on existing operations and are looking at growing their Waikato presence.

"As we saw at the auctions, that growth can either be through acquisition or by leveraging in family members to their own farms. Again, this is a trend which shows no sign of abating," Dawe said.

In addition to the three latest sales, Bayleys has sold another 21 Waikato dairy and dairy-support farms through the auction process since the beginning of October, for a total of almost $80 million.