Where Fonterra goes farm prices follow

Farm prices followed the Fonterra payout up and now they’re following it down.

New Zealand farm prices have fallen by a quarter across the country in the last year
and taken an even heavier hammering in Southland where the dairy conversion boom has ground to a halt.

Rural lifestyle blocks, however, are continuing to sell, with sales volumes increasing over June 2008 figures, and the median price for lifestyle blocks falling a more modest 7.4% year to year.

This will be worrying for people who borrowed a large proportion of the purchase price because the fall in values could mean they lose their equity in their properties.

But it’s a necessary correction to a market in which land values were not necessarily related to its earning capacity and unless you’re needing to sell there’s no need to panic. Prices went up, they’ve come down and they will, eventually, go up again.

Sheep and beef prices went up last season and the outlook for the coming season is reasonably positive; and the fundamentals which drove drove property prices up in the wake of the dairy boom haven’t changed.

The world is short of food and growing middle classes in China and India want more protein.

New Zealand farmers are very good at converting grass to protein and those who do it with low cost systems will not only ride out the recession but prosper from it.

One Response to Where Fonterra goes farm prices follow

  1. dutchie down south says:

    “The world is short of food and growing middle classes in China and India want more protein”
    They might want it but the question is,when are the poor masses in China be able to afford protein again?

    Before a person is be able to change its diet from a carb filled diet (read rice) to a more protein rich one, an income of minimal US$1.- is required.
    This level of income will be a long way off for a enormous group of Chinese,
    To sustain a marginal income for the millions of farmers who are migrating to the cities, an annual economic growth of 6% is required and this is unlikely under the current economic situation.

    The stimulus package of NZ$ 2,000 billion which was lounged in March by the Chinese government might not be enough to kickstart the Chinese export again and this could lead to more social unrest and with that more poverty amongst “our protein growth market” the porer part of the Chinese society.

    So the demand of protein will rise again, and with that the price but not as fast as dairy farmers in New Zealand want it to.
    Although the European economy seems to recover slowly, our dependancy towards the Asia when it comes to marketing our protein might hold back the recovery of farm prices in New Zealand for a reasonable long time.


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