Rural Property Insights
The Australian dairy sector has experienced some challenging market conditions over the past 12 months with reductions to farm gate milk prices and challenging seasonal conditions in the first half of 2016 impacting sentiment.
The supply imbalance in global dairy markets appears to be slowly returning to equilibrium and prices could hit $6.00 a kilogram of milk solids by the middle of next year.
This uptick in milk prices will drive high numbers of dairy farm sales which have been at historic lows over the past year. Larger dairy sales have occurred off-market, and lower order farms are typically marketed for sale publically and hotly contested by graziers looking to revert back to traditional livestock breeding or finishing enterprises.
The recent public offering for sale of the Cradle Coast Dairy Aggregation in Tasmania milking approximately 3,000 cows should provide a good guide to where larger dairy farm values are sitting in high rainfall locations.
The recent changes in farm-gate milk prices haven’t halted corporate interest for dairy farms. Colliers International are aware of no less than five new market entrants which are closely scrutinising the market with a view of acquiring farms in the coming 12 months. Many corporate buyers are chasing scale (500 + cows) with the majority of the recent sales below this size.
A further boost to farm-gate price competition is the recent opening of the Union Dairy Company factory at Penola and Blue Lake Dairy Group’s factory at Tantanoola will provide further competition for milk in South Australia and Victoria. This additional processing capacity should underpin demand for dairy land in these regions.
The medium term fundamentals for dairy remain very sound with the industry offering strong prospects of upside in values given the growing corporate interest. We anticipate a higher volume of dairies being marketed as we approach the spring selling period.
- Nick Cranna is director of valuation for rural and agribusiness.