PGW revises earnings guidance as farmer spending drops
Rural trader PGG Wrightson has revised its operating earnings guidance, saying trading conditions have deteriorated since the last market update in February.
Dave Heffernan of PGG Wrightson Real Estate, Oamaru, who marketed the 178ha farm at Hilderthorpe, south of the Waitaki River, said few dairy farms have sold in recent months.
“Although recent transactions have been rare, the sale value of about $47,000 per hectare is close to what this farm would have made two years ago.”
While many vendors seek $50,000 a hectare, few are selling at that price, Heffernan said.
The farm was listed in January and sold in June to a local buyer.
“We also received interest from several other parties, indicating that farms with low cost reliable water, good soils and proven production should achieve values that satisfy realistic vendors,” he said.
The farm produced 250,000kgMS from 580 cows in the 2019-20 season.
The sale did not include plant and equipment but the buyer has bought the herd (in a separate transaction) and a contract to supply Oceania.
Heffernan said because would-be Oceania suppliers do not need to buy shares or join a supply waiting list, the supply contract was a big incentive for the sale.
Oceania has been owned since 2013 by the Chinese dairy giant Yili, currently awaiting regulatory approval for its proposed purchase of Westland Milk Products.
Yili says it has invested $650m in setting up milk powder, infant formula and UHT production lines at the Oceania plant just north of the Waitaki River, and that it is paying suppliers above the industry average.
PGG Wrightson Real Estate North Otago branch manager John Sinnamon said the Hilderthorpe sale was a positive signal to a stalled market.
“Several factors, including Mycoplasma bovis and banks adhering to tighter lending criteria, have increased recent levels of buyer caution. However, this sale shows them more attuned to current market expectations, while vendors are willing to take innovative steps to achieve the best outcome.
“In the current market you have to be more innovative to achieve a sale. For example, vendors might opt to retain a proportion of equity in a farm for a limited term.
“This sale proves that realistic vendors can reach agreement with motivated purchasers, which is necessary for the rural property market to remain active. It also shows purchasers remain interested.”
