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Are SI Land Price Increases Sustainable?

Greetings Readers

A lot rests on the successful outcome of the proposed dairy mega merger. Not success in terms of achieving a merger but success as a result of the merger.

Land prices in the South Island for both producing dairy farms and for potential conversions are approaching a value that equals North Island dairy land.

A fifty percent lift in value in one year will have a significant influence on how individual farm businesses will measure their performance in the future. It could be as a banker suggests that these values do stand up at a conservative payout level of $3.80 but the future will be bleak if it does not.

It seems that most investors in the larger conversions in the South Island are not the traditional family farmer expanding to accommodate family members in the business but syndicates of investors from a range of backgrounds expecting a market return on their investment.

That market return is totally dependent on the success of GlobalCo or a like substitute capturing an international price benefit. Dairy producers need to be reminded that the touted 30-cent efficiency gain per year is minor compared to the single season $1-1.20 increase that has fueled the current euphoria in dairying.

Dairy producers are just as susceptible to market hype as was the technology investor of the past couple of years and regrettably reality has the potential show with the same negative intensity.

As a cooperative industry we must take care that we don’t value the paper that represents the industry ahead of the reality of payout – the final measure of worth and wealth.

Good farming

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