Media Release - September 2009

Low point in dairy farm price cycle creates buying opportunities – September 2009

Farm prices are near, or at the low point in their cycle creating a unique buying opportunity for investors, according to experienced farm syndication company, MyFarm.

MyFarm Director, Andrew Watters describes it as a buyers’ market.

“All the key assets of dairy businesses - land, stock and shares can be purchased at a significant discount to their recent values,” he says.

MyFarm’s latest investment offer, Waihopai Pastoral located at Woodlands in Southland features a land price of $30,400/ha plus Fonterra shares. That’s 30% below the peak prices of 2008, 8% lower than a similar property purchased in April of this year and 3% less than a very recent valuation.   

“At these prices we can generate good cash returns at a $4.50 to $5.50/kgMS payout,” says Watters.

Cow prices are also down more than 50% at below $1200 per head for a mid-season purchase. But Watters says cow prices are typically influenced by payout and increase relatively quickly in response to higher returns.

Finally, Fonterra share values are 33% below a year ago. 

Andrew Watters says recent Global Dairy Trade auctions indicate a rebalancing of supply and demand on the global market.  A Fonterra spokesman has forecast a 25% increase in market prices by the second half of 2010.  

“It is early days in the season but AgriFax product price data shows that prices are moving up at a slightly faster rate than the NZ dollar at the moment. Fonterra’s $4.55/kgMS payout appears to be a solid forecast for this year with a 15 – 20% lift in payout possible in 2010/11”.  

Andrew Watters says when payouts increase, investors can expect to see cow prices and potentially the Fonterra share price to firm quite quickly.  

“Land prices will be dependent on dairy farm profitability and the cost of credit but we would expect to see some recovery in 2010.  It is clear that farms will need to trade at prices that deliver higher cash returns to the owners of the business”.

“We believe there is a window of opportunity now to buy quality farms, livestock and Fonterra shares at these reduced values.”

MyFarm is receiving increased interest in its farm syndicates from a range of investors including conservatively indebted dairy farmers, sheep farmers looking to diversify their holdings into dairy and professionals who recognise the good medium term outlook for dairy farming.

Dairy Outlook  

• The Tetra Pak Dairy Index (June 2009 report) suggests that dairy product demand growth of 2.2% p.a. is likely through to at least 2012

• In the recent OECD-FAO Agricultural Outlook 2009-18, dairy prices in 2012-2017 period are forecast to be 25% higher than the period from 2009-11  

• Current USDA reports (http://www.ers.usda.gov/Briefing/Dairy/)show the costs of milk production are US$17.58 per hundredweight versus a current milk price of US$11.80 - $12.10 per hundredweight.   

• In their latest monthly outlook (August 09), Agrifax predicted  the following prices:

2009/10 - $4.65/kgMS (range 4.30 – 5.02)

2010/11 - $5.40/kgMS (range 4.74 – 6.14)

2011/12 - $6.25/kgMS (range 5.47 – 7.12)