Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Rural lending growth may slow after dairy-fuelled expansion

NZ rural lending growth may slow after doubling in the past decade on dairy expansion

By Tina Morrison

May 6 (BusinessDesk) – New Zealand’s rural lending, which more than doubled to an all-time high of $50.6 billion in the past decade on dairy farm expansion, may slow as farmers use record milk payouts to reduce debt, spurred on by rising interest rates.

In the past 10 years to June 30, 2013, agricultural debt has risen mostly due to the dairy sector where lending has almost tripled to $32.4 billion. The surge in lending to the dairy industry far exceeds the $1.4 billion debt owed by sheep farmers and $1.2 billion accrued by beef cattle farmers, according to Reserve Bank figures.

Dairy sector lending has soared as farmers have invested in converting land to dairy farming to take advantage of high milk prices and the associated strong growth in farm land prices, the central bank said in its last Financial Stability report in November. Indebted dairy farmers will be weighing up using high dairy payouts to pay down debt or increase farm investment in anticipation of a positive outlook, it said. Since then, the bank has begun to raise interest rates, hiking the benchmark twice in as many months, and milk prices have weakened in response to increased production.

“With historically low interest rates and very good returns, it’s been a good time to be repaying debt in most dairy farming businesses,” said Brent Love, an agricultural specialist at KPMG in Timaru. “Rising interest rates certainly make debt servicing in those dairy businesses more expensive. Hopefully farmers have heeded the caution of the Reserve Bank and positioned themselves for higher interest costs.”

Reserve Bank governor Graeme Wheeler is scheduled to speak to the DairyNZ Farmers’ Forum in Hamilton tomorrow on the significance of dairy to the New Zealand economy. The bank will release its latest six-monthly Financial Stability report next Wednesday.

In Fonterra Cooperative Group’s last GlobalDairyTrade auction in April, dairy product prices extended their slide to a 14-month low, paced by whole milk powder, raising speculation the company’s forecast record milk payout may not be sustainable.

In February, Fonterra raised its forecast payout to farmers to a record $8.65 per kilogram of milk solids for the 2013/14 season. Since then, the GDT price index has dropped almost 20 percent. Nick Tuffley, chief economist at ASB, said he now expects the milk payout this season to recede back to $8.50 per kgMS. Fonterra holds its next GlobalDairyTrade auction tomorrow morning.

Bank of New Zealand is noticing a slowdown in agri-sector lending as dairy farmers deleverage, incoming chief executive Anthony Healy said last month.

“When you get bigger dairy cheque payouts, farmers deleverage, they pay down debt and so the system credit starts to come back as well,” Healy said.

Total agricultural lending rose 5.5 percent in the year through June 2013, down from 15 percent growth in 2009, according to Reserve Bank figures.

“The agri lending market was flat to March, but it is expected to grow in June when many dairy land sales settle,” said Stefan Herrick, a spokesman for ANZ Bank New Zealand, which has the biggest share of the rural lending market at 32.9 percent.

“There has been an active land market and increasing land prices,” he said. “Farm capital expenditure is at a high level due to investments in environmental compliance, and increasing productivity. Land purchase and capex has been offset by high profit levels, leading to debt reduction.”

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Future Brighter Money: RBNZ Releases New Bank Note Designs

New Zealand’s banknotes are getting brighter and better, with the Reserve Bank today unveiling more vibrant and secure banknote designs which will progressively enter circulation later next year. More>>

ALSO:

Commerce: Supermarket Inquiry Finds No Breaches By Countdown

The Commerce Commission inquiry into anti-competitive behaviour by Countdown supermarkets, alleged by former Labour Party MP Shane Jones, has found nothing to warrant prosecution, although it warns supermarkets to take care in the way they communicate... More>>

ALSO:

Crown Accounts: English Flags ‘Challenge’ To Budget Surplus

Finance Minister Bill English is warning next month’s half yearly fiscal and economic update from the Treasury may not forecast a budget surplus, saying that returning the government’s accounts to surplus in 2015 will be “a challenge”, given the decline in commodity prices and weak global inflation. More>>

ALSO:

March 2015: Netflix To Launch In Australia And New Zealand

World’s Leading Internet Television Network to Offer Original Series, Movies, Documentaries, Stand-Up Comedy Specials and TV Shows for Low Monthly Price More>>

ALSO:

Price Of Cheese (Is Up): Dairy Product Prices Fall To Five-Year Low

Dairy product prices fell in the latest GlobalDairyTrade auction to the lowest level in more than five years, led by declines in rennet casein and skim milk powder. More>>

ALSO:

Gordon Campbell: On The Australians Scoring Trade Points Against Us With The Chinese

It hasn’t been a great year for Trade Minister Tim Groser... To top it off, Australia has just signed a FTA with China that has far better provisions on dairy exports than what New Zealand currently enjoys in our own FTA with China. More>>

ALSO:

Iwi & Local Consultation: Oil And Gas Block Offer 2015 Begins

Energy and Resources Minister Simon Bridges today announced the start of the Block Offer 2015 process for awarding oil and gas exploration permits. More>>

Industrial Action: Stats NZ Throwing Public Money Away Duplicating Data

The Public Service Association (PSA) says Statistics NZ are throwing money away by collecting the same data twice for official statistics such as the Consumer Price Index... As part of the ongoing industrial action, field interviewers who are PSA members are continuing to collect data, but are not sending it through to Statistics NZ. More>>

ALSO:

Other Stats:

Space: Rosetta's 'Philae' Makes Historic First Landing On A Comet

After more than a decade traveling through space, a robotic lander built by the European Space Agency has made the first-ever soft landing of a spacecraft on a comet. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news