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Dairy debt plumbs new depths

Rural News
Dairy debt plumbs new depths

Dairy debt has plumbed new depths but commentators say the trend is bottoming out. Annual agricultural sector figures released by the Reserve Bank earlier this month show dairy borrowing at June 30 of $28.6 billion, up 20% on a year previously reports Rural News. The grain, sheep and beef sector's debt has also edged up 7% at $10.8b while horticulture's is up 14% at $3.2b. The dairy figure has more than doubled in four years but Lincoln University economist Professor Keith Woodford believes banks have "˜learnt their lesson'. "˜With hindsight, the banks themselves probably wish they had lent a bit less. There is a strategic retreat going on and that debt will not increase greatly this year"¦ If it is $28b now, my guess is it will only be $29b next year.' Woodford says dairy conversion, development and capital spending "˜has all but stopped' and while debt will continue to grow short-term as overdrafts cover early season expenses, by the end of the production year banks will want that paid back."˜The tap has been turned off. What we are seeing now is largely overdraft lending to get people through this season.' "˜The average is over $20/kgMS. That's a lot and individual farm interest rates are starting to go up again.' Whether that level of borrowing is good or bad depends on the milk price. "˜If it is high, then you could say that level of indebtedness is the way to go. But if it goes down a lot some people will be in big difficulty. All we can say is that it is a high risk strategy.' If the payout rises Woodford doesn't believe dairy debt will take off again. "˜The banks have learnt a lesson from this. They are all run from Aussie and the message coming from over there is "˜Hey, we need to make a strategic retreat from the high level debt position we've got into in relation to dairying'.'

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