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Dairy Farmer Optimism in New Zealand Rural Land Co

New Zealand 25.10.2023
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New Zealand Rural Land Co is expressing a positive outlook for its dairy farmer tenants, as it believes that the recent increase in milk prices will more than compensate for an upcoming rental hike. The publicly traded farm management company, which is listed on the New Zealand stock exchange, points to the results of the recent Global Dairy Trade (GDT) auctions, which suggest a milk price of $7.90 per kilogram of milk solids. This figure surpasses the midpoint of Fonterra's October projection of $7.25/kgMS.
Dairy Farmer Optimism in New Zealand Rural Land Co
Photo by Eric Schroen on Unsplash
Fonterra, a major dairy processor, has adjusted its forecast to a range of $6.50/kgMS to $8/kgMS. New Zealand Rural Land Co uses the GDT price as an indicator of milk prices and on-farm profitability, which reflects market sentiment and farm property values.

The company notes that some of its tenants will experience an increase in their rent in July due to a review linked to the consumer prices index. Despite this, the robust performance of GDT auctions is seen as supporting the profitability of its tenants. The implied milk price of $7.90/kgMS is viewed as a premium compared to the break-even milk price for New Zealand Rural Land Co's tenants.

The company's portfolio consists of 11,710 hectares of farmland located in Canterbury, Otago, and Southland, along with 3,137 hectares of forestry in Manawatū-Whanganui.

New Zealand Rural Land Co conducts an annual review of its land assets, scheduled for December with the results released in February. The company has noted that property prices have remained resilient throughout the year, despite the challenging economic conditions. The company's shares closed at 81 cents on a recent Friday, marking a 23.2% decline over the past 12 months.

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