Estimating Pastoral Land Values in Relation to Productivity
The productive worth of individual pastoral farms is commonly assessed and compared in terms of the dollars paid (or asked) for each “livestock equivalent” wintered on the property. When discussing or quoting farm “stock units” it is normal to use “winter stock units” (normally standardized at July 1st) as, excluding farmers raising steers to 18 to 24 months, most farms at that time have substantially reduced their stocking levels to their basic breeding flock or herd. (Most farmers calculate a ewe – not in lamb, as one stock equivalent (su), or a two year old cow – not in calf, as six su).
A 450 hectare farm which had a 5000 winter su capacity was sold in 1997 for $750,000; which is the equivalent of $150 per su. If the same farm resold for its 2005 market value of $4,000,000, that price would equate to $800 paid for each per stock unit carried. An obvious conclusion is that for a farm purchase to be economically viable at that price level, commodity prices would need to be maintained in real terms at 2005 levels for many more years. history relates however, that in 2006 lamb prices to farmers dropped considerably.
While it is a useful basis to compare the winter carrying capacity of different pastoral properties relative to their cost price, this is not the only factor needing consideration when purchasing a property. Overall farm productivity needs to be appraised, taking into account every aspect affecting productivity through a 12 month season. Important factors include terrain, soils, internal subdivision, pasture development, water reliability (and quality) and very importantly; the effect of local climate on the annual farm pasture growth pattern. These factors determine the ability of farmers to finish (or fatten) livestock from early summer through to autumn and to buy in or trade additional livestock over this period, with obvious effect on overall farm profitability.
Although the orchards and vineyard industries share with the pastoral industry the price highs and lows dictated by export commodity markets; vineyard and horticultural property prices are as much affected by localized climatic risk factors as their productivity. This is a basic point of difference when considering vineyard and orchard property values. These industries are rightly considered as relatively high in risk, with frost, hail and wind regularly challenging growers – depending to a large degree on their locality. This risk factor is accentuated by the fact that most growers do not benefit from the diversified primary export markets enjoyed by pastoral farmers (wool, sheep meat and beef) and it is not uncommon for a grower to loose an entire year’s income from one climatic event.
The value of an individual property is to a large extent determined by soil type, tree varieties, ages, condition, water and infrastructure; all being the factors which influence both production levels and crop values. Irrespective of these factors however, all things being equal, an orchard located within the Heretaunga plains between Hastings City and the coast line of Hawkes Bay (as an obvious example) is likely to be significantly more valuable than a similar property on the west side of Hastings, where the risk of hail storms and acute late spring frost are significantly higher.
Filed under: Hawkes Bay, Investment, Moving to New Zealand, Pastoral, Specialist
