Banking on ag – farm sector savers are borrowing again

After stashing away record savings, farmers are spending up


Farm Online News
ANZ Banking Group’s Wee Waa agribusiness manager Ann-Maree Galagher discussing upbeat borrowing inquiries at last month's AgQuip field days with NSW head of regional business banking, Stuart Hancock.

ANZ Banking Group’s Wee Waa agribusiness manager Ann-Maree Galagher discussing upbeat borrowing inquiries at last month's AgQuip field days with NSW head of regional business banking, Stuart Hancock.

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Record farm earnings in the past two years have been good news for the banking sector as rural debt fears subside

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Successive years of high livestock returns have enabled farmers to slash debts and push their cash reserves to unprecedented highs as they seize the chance to future-proof their finances.

Primary producers stashed away a big $6.1 billion in farm management deposits (FMD) at the end of 2016-17 – almost $1 billion more than 12 months earlier.

But they are also braving up to borrow more.

In fact, after a bumper season for livestock prices and crop production in 2016, overall agriculture, forestry and fishery sector debt hit $67.2b in March this year.

Neil Clark Business Intelligence principal Neil Clark, says farm lending and deposit conditions could hardly be much better for agribusiness bankers, although farmers are still a "wee bit more cautious" about borrowing than in the past.

Neil Clark Business Intelligence principal Neil Clark, says farm lending and deposit conditions could hardly be much better for agribusiness bankers, although farmers are still a "wee bit more cautious" about borrowing than in the past.

That’s about $5b more than two years ago.

“For bankers, the fundamentals for lending could hardly be better,” said Victorian farm business intelligence analyst, Neil Clark.

“Farm incomes are up, interest rates are low, deposit accounts are strong and many farmers have worked hard to pay down outstanding loans in the past few years.”

Although poor seasonal conditions continue hamper the outlook in some regions and producers are generally more cautious about taking on debt than a decade ago, they are increasingly back in the market making serious investments.

In particular they seek more efficient technology; more efficient infrastructure, and, more land –  if it’s available.

“Our research says 25 per cent of Australian farmers intend to spend on new plant and equipment this financial year – in NSW it’s about 28pc,” said Commonwealth Bank of Australia’s (CBA) agribusiness executive general manager, Grant Cairns.

“The NSW figure is up about 5pc on farmer intentions a year ago.”

Big cash flow stirs ag growth

That appetite for spending followed record cash flow into the agriculture sector last year, triggering CBA’s best ever financial year for contributions to FMD accounts.  

Growth agendas were also notable among businesses servicing post-farmgate needs, from farm advisory firms and contractors, to marketers and processors.

Mr Cairns said NSW and South Australian farmers were showing strongest interest in buying extra land.

National Australia Bank’s NSW agribusiness head, Geoff Rose, said while not all districts had enjoyed a run of strong earnings, those who lucked two or three good seasons, plus good commodity prices, were looking to expand and recapitalise.

“But there are some challenges to buying extra country, in particular, there’s not too much available for sale,” he said.

“Now that commodity prices have lifted, people who may have considered selling a few years ago are making useful money and not letting country go so easily.

“Land prices have risen, too, which has helped the equity position many farmers now hold in their farms.”    

Land prices have risen, too, which has helped the equity position many farmers now hold in their farms - Geoff Rose, National Australia Bank

However, some significant land investment activity was happening “over the fence” as neighbours negotiated deals with neighbours, said Australia and New Zealand (ANZ) Banking Group’s NSW regional banking head, Stuart Hancock.

National Australia Bank's NSW agribusiness head, Geoff Rose, says many farmers are feeling confident about expanding and recapitalising.

National Australia Bank's NSW agribusiness head, Geoff Rose, says many farmers are feeling confident about expanding and recapitalising.

“From 2014 we saw a lot of focus on debt being paid down, but now customers are confident about spending to improve their business,” he said.

“From an equity position they’re pretty well supported so they are considering everything from fencing and sheds to buying an adjoining paddock or farm, and we’re hearing a lot of talk about lifting productivity.

“The appetite for more productive ag tech initiatives is certainly growing.”

Investing in productivity

Mr Hancock pointed to interest in remote monitoring systems tracking livestock weight gains in the paddock, real time grazing conditions and stock watering points.

Croppers were investing in a machinery equipment revolution – everything from drones to monitor in-crop weed hot spots and moisture stress, to automated, hands-free tractors.

CBA’s Mr Cairns agreed technical breakthroughs were providing exciting productivity options.

I’m not seeing as much worry about debt levels these days - Stuart Hancock, ANZ

He said stronger interest, domestically and overseas, in what Australian farmers did, and the provenance of their products, would also require support from new technology and people with specialist skills.

“It seems to be a fantastic time for Australian agriculture, but the industry will need a lot of capital to keep pace with the changes we’re experiencing.”

Investment funds and overseas investors would be valuable contributors, but professional guidance and the capital contribution from the mainstream banking sector would be critical, too.

“Farmers are mostly focused on running the farm, so it’s important we help them with ideas and information which will ultimately assist them to make good management decisions,” Mr Cairns said.

CBA’s lending to rural and regional businesses topped $6b in 2016-17.

Borrowers more alert

ANZ’s Mr Hancock noted closer consultation and information channels between bankers and agribusiness customers in the past decade had helped borrowers better understand financial management options.

“I’m not seeing as much worry about debt levels these days,” he said.

“There’s certainly a respect for sound equity levels among customers, but our managers also offer a lot more market insight and risk management thinking to the debt conversation.”

At Wee Waa in northern NSW’s grain, cotton and mixed farming heartland, ANZ’s agribusiness manager, Ann-Maree Galagher, agreed farmers were more comfortable with debt and how to manage it.

“But we don’t take anything for granted, especially as it’s been a while since interest rates were on a rising trend,” she said.

“With today’s record low rates it’s sometimes easy to forget that 22pc overdrafts have been a real situation within many farmers’ lifetimes.

“Everybody needs to stay educated and alert to the key drivers in financial markets and the farm business.”

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