Milk price whips up dairy farm values down south
The record farmgate milk prices expected in southern Australia this year could drive dairy land values higher over the next two years and by as much as 20 per cent, according to agents and analysts.
Rising global dairy commodity prices and, locally, the shrinking national pool of milk – it was forecast to dwindle by 8.5 per cent to 8.5 billion litres in 2018/19 season just finished – have put upward pressure on prices.
The falling Australian dollar increases export returns for exporters and helps raise farmgate prices as well.
At the same time drought in northern Australia has made the higher-rainfall dairy regions of south-western Victoria, Gippsland in the state’s east and South Australia more attractive.
Nick Cranna, Colliers International’s national director agribusiness for valuation and advisory services, said dairy property values in the south were “well primed to catch up in the next 12 months” after several years of flat pricing.
“It is our view that the dairy industry offers excellent capital growth prospects over the medium term, particularly as domestic dairy production is at decade lows, helping keep the farm gate price up.”
“There are new market participants looking at dairy. These are typically institutional, but both domestic and foreign, private investors continue to support the suggestion of an uplift, as they too look to establish a foothold.
“The focus is on 500+ cow enterprises, with some blue-ribbon farms now being offered for sale in the key regions, and we would expect land value growth of between 10 and 20 per cent over the next 18 to 24 months.
Dairy land prices have been depressed. The most recent figures from Victoria’s valuer-general show that Warrnambool, the heart of the state’s dairy industry, was one of the few farming regions in the state to buck a 10 per cent rise in values.
Falls up to 10 per cent recorded in Warrnambool were a “lag impact” from issues that emerged in the dairy industry in 2016 including the Murray Goulburn dairy crisis and falling milk prices, according to valuer-general Robert Marsh.
Already farmgate prices – based on the industry metric of per kilogram of milk solids – are rising for the 2019-20 season.
Farmgate milk prices finished last season at or above $6 per kgMS. This season most prices have opened at $6.80 or higher with price signals above $7, according to Rabobank.
“When you look at it historically we’re going potentially going to see the record highest milk prices for southern Australia,” Rabobank senior analyst Michael Harvey told The Australian Financial Review.
“Clearly, there are prices being paid to farmers much higher than that already. That’s not surprising because of the lack of milk in the system. Dairy companies are dipping into their margins to fund a higher milk price.”
In regard to the southern dairy sector, Mr Harvey said there were signs the industry was emerging from a cycle where the profit pool was at a low point.
“Broadly speaking there’s going to be a lot more dairy farmers making money this year than they were last year. You’d expect that to flow through to land values and land appreciation.
“In the last few years, there’s been an acceleration in farm exits. There’s been more farms on the market than they’ve been buyers. That’s slowly turning around.”
