Friday, February 20, 2009

Farm prices immune to recession?

Federated Farmers Meat and Fibre chairman Bruce Wills has publicly stated he thinks farm prices could tumble by up to 30 % - a statement I'm not so sure is correct for some parts of the country.

Last year in Mid Canterbury farm values reached a record high when an irrigated farm was sold to process vegetable growers for $20 000 an acre. Prior to that farms in the area had been hovering between the $16 ooo to $18 000 mark.

Since then it has been hard to get a handle on values as farm sales in the area have come to a virtual halt. However, the law of supply and demand still stands and sectors such as the process vegetable community have held up in current economic conditions and although the dairying pay-out has decreased from $7.90 to $5.10 a kilogram the fundamentals are much the same.

Recession talk breeds more recession but in the case of some sectors of the farming community it is pretty much business as usual, and if you are a corporate farmer the ability to spread your risk can outweigh the current negative talk.

If you add to that the welcome drop in interest rates you could probably succeed in arguing that now is a good time to buy land, if it comes available - and I'm sure many of these farmers will take that opportunity should it come, hence the market may sustain its high.

Areas such as Northland may be vastly different of course but Canterbury and Southland (which is already showing signs of bucking the trend) are well placed to survive the recession panic.

Farmers are right to hold on to their land at present, it only adds to the competition when it does come available, and in these areas they should not succumb to the depressed spin coming out of the media.

Supply and demand - a fundamental that doesn't change.

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