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

 

Half Full: Dairy Payouts Steady, Cash Will Be Tight

Industry body DairyNZ is advising farmers to focus on strong cashflow management as they look ahead to the 2015-16 season following Fonterra's half-year results announcement today. More>>

ALSO:

First Union: Cotton On Plans To Use “Tea Break” Law

“The Prime Minister reassured New Zealanders that ‘post the passing of this law, will you all of a sudden find thousands of workers who are denied having a tea break? The answer is absolutely not’... Cotton On is proposing to remove tea and meal breaks for workers in its safety sensitive distribution centre. How long before other major chains try and follow suit?” More>>

ALSO:

Scoop Business: NZ-Korea FTA Signed Amid Spying, Lost Sovereignty Claims

A long-awaited free trade agreement between New Zealand and South Korea has been signed in Seoul by Prime Minister John Key and the Korean president, Park Geun-hye. More>>

ALSO:

PM Visit: NZ And Viet Nam Agree Ambitious Trade Target

New Zealand and Viet Nam have agreed an ambitious target of doubling two-way goods and service trade to around $2.2 billion by 2020, Prime Minister John Key has announced. More>>

ALSO:

Scoop Business: NZ Economy Grows 0.8% In Fourth Quarter

The New Zealand economy expanded in the fourth quarter as tourists drove growth in retailing and accommodation, and property sales increased demand for real estate services. More>>

ALSO:

Scoop Business: RBNZ’s Wheeler Keeps OCR On Hold, No Rate Hikes Ahead

The Reserve Bank has removed the prospect of future interest rate hikes from its forecast horizon as a strong kiwi dollar and cheap oil hold down inflation, and the central bank ponders whether to lower its assessment of where “neutral” interest rates should be. The kiwi dollar gained. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news