U.S. milk producers who feel priced out of the market for top farmland are not alone. Their counterparts in New Zealand's top dairy areas are feeling the same price squeeze.
Competition from other farming sectors, especially in the Waikato and Bay of Plenty regions on New Zealand's North Island, has pushed Kiwi dairy land prices higher at a time when farm milk prices are terrible. In the past year, they have dropped roughly 50 percent.
It's a story that U.S. milk producers know all too well from a few years ago, when the price of corn and other grains soared and took Midwest farmland prices with them. As dairy owners quickly learned, milking cows on $5,000 per acre ground is one thing, but doing it on $15,000 ground is a much more difficult proposition.
Morris Butler, with Professional Real Estate in New Zealand, told the Australian Broadcasting Corporation that high-quality dairy land in New Zealand has risen to about $60,000 NZ$ per hectare in the last year. A hectare is 2.47 U.S. acres, and current exchange rates mean that price works out to $17,000 per U.S. acre.
"In Waikato it's been quite a bit higher," Butler noted.
Dairy owners in California's San Joaquin Valley, of course, will smile at that number. High profitability of nuts and grapes, due to strong global demand, has driven many land prices in much of the region past $20,000 per acre.
As orchard and vineyard farmers push to expand, some dairy owners are presented with sales offers that are too good to pass up - so dairies go out of business.
(c) Hoard's Dairyman Intel 2015
June 29, 2015