Price of dairy land starting to weaken

9 October 1998

Price of dairy land starting to weaken

By Louise Rose

MILK prices may have fallen sharply over the past two years, but average dairy land values have only recently started to weaken. Some parcels in demand are still achieving top prices.

Matthew Bush of FPDSavills Research says: "Between 1996 and 1998 the milk price fell by 28%. But comparatively average dairy land values to date reflect an 8% drop from their £2250/acre peak during most of 1997."

Milk prices peaked in early 1996, averaging about 27.5p/litre but dairy output and land values continued to rise until 1997. From 1992 to mid-1997 the value of dairy land increased by 74%.

Farmers who had accumulated cash from the 1992-96 upturn in farm incomes, and non-farming money coming into the agricultural property sector, increased the demand for land often pushing sale prices up. Since 1997 this demand for land has prevented its value from falling by the same degree as farm incomes.

The research assumes non-agricultural demand for land will continue during the rest of the year, albeit less intensely, before weakening further next year.

Currency – the key factor influencing farm incomes since 1991 – is a major variable.

"Our baseline assumption points to sterling falling to DM2.80 by the end of the year and to the euro equivalent of DM2.60 by the end of 1999. We expect the milk price to rise by 3p/litre by that time," says Mr Bush.

Although any rise in milk price is unlikely to raise income to the levels enjoyed in the 1992-96 period, the recovery should prevent the trough in the land market going too deep.

However, there will be a delay in the recovery of dairy land prices, though the continued presence of non-agricultural buyers should support dairy land with residential or amenity value. &#42

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