HGH - Heartland Group Holdings

[winner69]

Judging by the evidence of what you posted last week mate its too late and they've already fallen. I think with an average of 61% LVR HNZ have plenty of exposure to the most at risk sector of the industry. Upcoming sales will only reflect what we already know, that being that the massive disconnect between land prices and what that land is actually capable of producing in terms of cash flow has to close. Personally I think an astute buyer of a dairy farm right at the minute would be looking at bidding somewhere in the mid to high $2m range for an operation at its peak that would have been $4m. Just my opinion by why would any astute businessman right at the minute pay any more knowing its never been more of a buyers market ? We're in for a really meaningful correction in dairy farm prices, of that I am very sure. How much of that translates into real losses to HNZ, is very hard to quantify but history tells us that when times are really tough, (e.g. GFC), finance companies invariably underestimate their doubtful debt provisions, usually by a long way. I would have thought its crystal clear, all the risk to HNZ's FY16 forecast is too the downside. In terms of the point you've made mate, hopefully the board are well aware of there legal obligation to place the interests of shareholders ahead of anyone else. Thankfully the Fonterra loan thing buys some participants who are hopelessly unviable, at current pay-out level's, time to be helped to be managed out of the industry rather than be in a foreclosure position and therein probably lies a bit of relief for HNZ shareholders. Without the Fonterra loan thing the situation would be FAR worse.

Aren't farms valued by a simple rule of thumb with the milk price the main variable and to a certain extent interest rates. Other factors such as stocking rates and production rates pretty well fixed.

One could say that on that 'rule' if no money being made on milk the land is worthless as a dairy farm so we revert back to the average again eh ......which I would think is well below what some have paid recently.

Goodness knows what will happen when interest rates go up again

[Beagle]

Aren't farms valued by a simple rule of thumb with the milk price the main variable and to a certain extent interest rates. Other factors such as stocking rates and production rates pretty well fixed.

One could say that on that 'rule' if no money being made on milk the land is worthless as a dairy farm so we revert back to the average again eh ......which I would think is well below what some have paid recently.

Goodness knows what will happen when interest rates go up again

Yes my understanding is that dairy farms have been valued based on their annual production rate but with nobody really making any meaningful money, (even those who own and farm outright), and with farms having not changed in value much since the days of $8.00 kg, how do you value them now ? Who in their right mind would buy one now based on a valuation when these farms actually made good money ?

[winner69]

Yes my understanding is that dairy farms have been valued based on their annual production rate but with nobody really making any meaningful money, (even those who own and farm outright), and with farms having not changed in value much since the days of $8.00 kg, how do you value them now ? Who in their right mind would buy one now based on a valuation when these farms actually made good money ?

Roger, Dairy farm prices already on the wane

https://www.reinz.co.nz/shadomx/apps...siteName=reinz

The REINZ Dairy Farm Price Index fell by 5.5% in the 3 months to June compared to the 3 months to May

[macduffy]

I would doubt that farms are valued on a month by month production value but rather on a longer term forecast average value. If current prices were thought to prevail longterm then dairy farms would be given away, right now. They aren't and won't.

[nextbigthing]

history tells us that when times are really tough, (e.g. GFC), finance companies invariably underestimate their doubtful debt provisions, usually by a long way.

Roger, Winner etc, keep up the posts, I for one value these perspectives and thoughts.

Roger re the quote above, if you base it on a GFC situation then of course it's going to be bad, not just for HNZ!

[nextbigthing]

I would doubt that farms are valued on a month by month production value but rather on a longer term forecast average value. If current prices were thought to prevail longterm then dairy farms would be given away, right now. They aren't and won't.

Exactly Macduffy.

The present value of all future revenue streams, plus or minus a bit for factors such as how easy it is to farm, location etc

[Beagle]

Roger, Dairy farm prices already on the wane

https://www.reinz.co.nz/shadomx/apps...siteName=reinz

The REINZ Dairy Farm Price Index fell by 5.5% in the 3 months to June compared to the 3 months to May

Its interesting to note this dairy farm price fall was for data to the end of June, i.e before the custard really hit the fan with three latest, (all circa 10% falls, back to back) severe falls in the GDT auction result.
Hardly bodes well for future sales prices does it !
Thanks NBT - I'm sure it feels like a GFC MK2 for the dairy farmers
OTOH for the sake of some balance Tony Alexander doesn't share my doom and gloom view, in fact sounds quite relaxed about the current slump...would be music to Percy's ears if I wasn't on his ignore list LOL
http://newsletters.bnz.co.nz/busines...ry-prices.html

[winner69]

Exactly Macduffy.

The present value of all future revenue streams, plus or minus a bit for factors such as how easy it is to farm, location etc

I remember reading a Massey paper a while ago about the difference in market and investment values of dairy farms.

In good times market values were significantly higher than investment values (prob not a surprise) but during dairy 'recessions' market values didn't drop that much below investment values.

Investment values of course used more average yields over a longer timeframe and appropriate cost of capital rates.

I thought it quite interesting.

Much the same as stocks being over and undervalued eh.

[nextbigthing]

According to the link below, only 25% of dairy farms are cash flow negative. And even then, they're eligible for support from Fonterra.

Storm in a teacup and time to back the truck up already?

http://www.sharechat.co.nz/article/7...ash-flows.html

[winner69]

So 111 was a lower low in the current downtrend. Previous lower high was 121 so that immediate target to see if the good news etc is enough to break out of this downtrend (from 141)

OZ banks recovered yesterday afternoon. US markets up heaps overnight. Mike Hosking says the worlds all OK. - today will be a big day for Heartland shares, maybe even close to 120