Soaring property values, robust farm commodity returns, cheap loan rates and big seasons have emboldened farmers to take on much more debt - now totalling a record $94 billion.
That's a jump of about $7 billion in 12 months, even though fewer Australian farmers are actually borrowing money.
At the same time, just as interest rates and farm costs start climbing, the number of broadacre and dairy farms now caught with high or risky debt servicing pressures and low borrowing capacity has fallen to a remarkably low two per cent.
In fact, 50pc of all Australian farms had very little debt, or none, according to latest Australian Prudential Regulatory Authority figures for July 2021.
The number of farms increasing their debt that year was also the lowest in two decades (22pc), while the 40pc paying loans down represented the highest repayment trend in 15 years.
APRA recorded just 10 farm debt foreclosures by lenders in 2020-21, down from a recent peak of 36 the previous year.
Just 5pc of farmers were responsible for almost half of the dairy and broadacre producer sectors' aggregate debt (47pc) and these tended to be very large businesses generating high cash flows on average to finance debt.
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APRA's figures showed total farm sector loans and leases grew 6pc in 2020-21, rising from a total farm debt of $87b in the previous financial year to $93.8b.
Aggregate debt kept rising during the past financial year by about 12pc, according to Reserve Bank of Australia data for June 2022, although no final figure is available.
Farm incomes are less vulnerable to rising interest rates than they were in the 1990s or the early 2000s
- Dr Jared Greenville, ABARES
ABARES executive director Jared Greenville, said growth in farm borrowings was not concerning, given higher property values had kept the equity farmers owned in their businesses at a steady level.
"Farm incomes are less vulnerable to rising interest rates than they were in the 1990s or the early 2000s," Dr Greenville said.
"Higher commodity prices and two record-breaking seasons have meant farmers have higher incomes to pay down debts in the short term."
The big borrowers
Agriculture's biggest borrowers were in the grain and mixed farming sector which had debts totalling $36.3b in July 2021, representing a rise of more than $2b in 12 months (and up from $28.7b four years earlier in July 2017).
ABARES found specialist cropping farms averaged the most debt across the entire industry - almost $2m each - partly because they are larger on average than livestock holdings.
The beef industry's $21.6b in borrowings had also risen about $2b during 2020-21 (and up from $17b in 2017), while the number of borrowers increased, too, by about 300 to 24,370.
Farm sector lending rose in all states and territories, but most notably in NSW and Queensland, both up 7pc where total borrowings lead the nation and total $30b and $23b respectively.
The most concentrated farm debt was in the NSW Riverina (14pc); West Australia's southern and central wheatbelt (12pc), and southern and eastern Victoria (11pc), reflecting a high number of farms in these regions.
Dr Greenville noted the main reason broadacre and dairy farmers had borrowed money in 2020-21was for fund land purchases, followed by working capital, but debt was also used to fund new plant, infrastructure and equipment.
Broadacre cropping and livestock enterprises and dairy farms collectively account for about 68pc of Australian farm output value.
Dr Greenville said Australia's farmers were clearly taking advantage of two record seasons and looking to expand and invest in productivity initiatives.
Increased agricultural sector lending activity was an encouraging sign.
Easier to repay
Yet, while total farm debt had grown, falling lending rates in recent years had helpfully offset the aggregate cost of producer interest bills by about 13pc in 2020-21.
Interest payments consumed an average 11pc of broadacre and dairy farm income in that financial year.
ABARES has noted the average proportion of farm cash income (after cash costs) used to make loan payments had been trending down for several years due to lower rates, or improved farm incomes, or both.
Farms with relatively low additional borrowing capacity, or equity ratios below 70pc, and relatively high debt servicing commitments of more than than 40pc of farm cash income represented just 2pc of the broadacre and dairy sector in 2020-21, which was down from 7pc 10 years earlier.
However at the height of the recent drought in 2019-20 more than $1.1b in loan repayments owed by almost 2000 producers were 90 days or more beyond their due date.
As eastern states' seasonal conditions bounced back, that overdue figure fell to about $800m the following year with the number of producers responsible for those missed repayments trimmed to about 1300.
ABARES reported that as a share of total farm lending, loans more than 90 days past their due date represented 0.8pc of all loans and leases in 2020-21, down from 1.2pc the previous year.
The 2018-19 financial year was a relatively big one for farm debt mediation in recent times, with 163 farm businesses facing the prospect of foreclosure, and 31 foreclosures actually recorded that year.
By 2020-21 the number of businesses involved in mediation was down to 129 and foreclosures dropped by two thirds.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
