Dairy farm prices set to fall, says ANZ

While milk prices are low in New Zealand, the same could not be said for Australia and Latin America.

New Zealand dairy farm prices are likely to fall this spring as the sector faces the prospect of two successive years of sub-par payouts, according to the ANZ Bank.

Dairy companies have lowered their forecasts for the current year in recent weeks in response to sharply lower world dairy product prices.

The country's biggest co-op, Fonterra, is expected to substantially lower its forecast payout tomorrow from the current level of $5.25 a kg of milksolids. Last year's milk price was $4.40 a kg, compared with DairyNZ's $5.70 a kg estimate of an average breakeven point.

"While current market activity points to a situation of relative calm, there's a high likelihood a correction is in the wind this spring for dairy-aligned property," the bank said in its latest edition of Agri Focus.

Total property turnover remained not too far off the long-term average and the price per hectare has pushed through the $30,000/ha mark for the first time.

"However, recent anecdotal reports are highlighting that large-scale dairying operations are struggling to attract buyers, while second-tier or distressed properties are receiving discounted offers," the bank said.

However, smaller grazing and finishing blocks still appear to be attracting good buyer interest, the bank said. Total monthly turnover has continued to cool from the historical highs reached 18 months ago.

The average farm value, meanwhile, has continued to trend up to a new record high - with the average allfarm price reaching $30,800 a hectare in June.

Turnover of dairy-aligned property has stabilised in recent months and prices have popped higher, reflecting a higher than-usual proportion of sales in the Waikato area, rather than a genuine lift in prices, ANZ said.

"More timely anecdotes of market behaviour tell a different story with reports that large-scale dairying operations are struggling to attract buyers and second-tier or distressed properties are receiving discounted offers," the bank said.

"The question in the rural property market is no longer whether dairy-aligned land values will fall, but rather how large the fall might be," it said.

"The extent of financial pressure that is now going to be placed upon the sector over at least the next two years from back-to-back low farm-gate milk prices," the bank said.