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

 

Post-Post: Brian Roche To Step Down As NZ Post CEO

Brian Roche will step down as chief executive of New Zealand Post in April 2017, having led the state-owned postal service's drive to adjust to shrinking mail volumes with a combination of cost cuts, asset sales, modernisation and expansion of new businesses. More>>

ALSO:

Company Results: Air NZ Rides The Tourism Boom With Record Full-Year Earnings

Air New Zealand has ridden the tourism boom and staved off increased competition to deliver the best full-year earnings in its 76-year history. More>>

ALSO:

New PGP: Sheep Milk Industry Gets $12.6M Crown Funding

The Sheep - Horizon Three programme aims to develop "a market driven, end-to-end value chain generating annual revenues of between $200 million and $700 million by 2030," according to a joint statement. More>>

ALSO:

Half Full: Fonterra Raises Forecast Milk Price

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $4.75 per kgMS. When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.25 to $5.35 before retentions. More>>

ALSO:

Keep Digging: Seabed Ironsands Miner TransTasman Tries Again

The first company to attempt to gain a resource consent to mine ironsands from the ocean floor in New Zealand's Exclusive Economic Zone has lodged a new application containing fresh scientific and other evidence it hopes will persuade regulators after their initial application was turned down in 2014. More>>

Wool Pulled: Duvets Sold As ‘Premium Alpaca’ Mostly Sheep’s Wool

Rotorua business Budge Collection Limited (Budge) and sole director, Sun Dong Kim, were convicted and fined a total of $71,250 in Auckland District Court after each pleading guilty to four charges of misrepresenting how much alpaca fibre was in their duvets. More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news