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Spring 2017 Property Pull-Out October 16, 2017
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Buyers still lining up T
Alan Williams alan.williams@nzx.com
HE higher dairy payout gives some highly-indebted farmers a chance to make strategic decisions about their properties, Bayleys NZ country manager Duncan Ross says. Those with a portfolio of farms could be evaluating their profitability on a more sustainable payout footing. It might be time to decide “if it’s time to quit some of the debt and shore up the balance sheet”. The pressure is on from banks for debt-laden dairy farmers to repay some capital. For some farmers the lift in
payout could be a double-edged sword. “Assuming they can maintain their lower cost levels, great, but the increased profit levels will be sought for repayment on principal and that comes from after-tax income.” Outside of debt issues most farmers had been able to get their farm costs back to 2013 levels through reducing boughtin feed and, in some cases, reduced stocking rates. Total farm working expenses were going to be a more manageable 57% of total farm income this season, down from 65% last season and 95% in 2015-16. Fonterra has confirmed a $6.12/kg MS payout plus a 40c/ kg MS dividend but, in some cases, debt levels were up in the
$40 to $50/kg MS range, Ross said. Some farmers had taken on extra debt for working capital in the 2015-16 dairy downturn with overdrafts capitalised into loans.
There is a real silver lining in a decision to selldown and end up in a healthier equity position. The recent AgFirst WaikatoBay of Plenty farm cost survey had highlighted the importance of a $6-plus payout.
Survey compiler Phil Journeaux found the “model farm” being used had incurred an extra $126,000 of term debt. Ross, who joined Bayleys after being an executive director at accountancy group Korda Mentha and came from a sheep and beef farming background plus some dairying experience, said that had proved to be a significant figure for banks, which were now seeking to get funds repaid. They were struggling for deposits on a tight local market “further prompting them to try to recoup more principal from large rural borrowers in order to lend on to new borrowers”. Interest in buying dairy farms remained strong because of the confidence in the sector’s longterm fundamentals and there
were some strongly cashed-up buyers in the market. “There is a real silver lining in a decision to sell-down and end up in a healthier equity position. “This can enable you to focus on investing in the remaining farm asset and improving the operations you decide to retain.” One option was to sell the best farm in a portfolio, then reorganise the others. Despite wet conditions slowing the rural market in some regions, notably, Waikato, Rotorua and Manawatu, the spring sale season was shaping up well, Ross said. On some sales over the last few months there had been a significant number of underbidders who were still looking for farms.