Details of agricultures climbing debt

January 2009 Commentary on agricultural debt:by Agricultural production Economics- worrying reading!! NB: RBNZ corrected November claims figures for the agricultural sector up by approximately $30 million and for food manufacturing down by a similar number. RBNZ figures show agricultural debt with registered banks at the end of December 2008 increased $348 million from November and is now $42.284 billion - $8.16 billion more than one year ago and $12.6 billion more than two years ago.  The last month when NZ's agricultural producers reduced their cumulative debt was February 2001. The November increase in debt is the second month of almost normal growth after eighth consecutive months of exceptional growth in debt. Non bank lending to agriculture in the December quarter was down $326 million dollars from the September quarter to $1,200 million. Given bank efforts from October 2008 to reduce exposure to agriculture, the continued increase in borrowing must be causing considerable dismay. Worse is to come with Fonterra effectively adding a requirement for dairy farmers to fund an additional $900 million of co-operative debt through delayed progress payments till October 2009. Fonterra's reduced payout forecast of $5.10 will have decreased dairy farm income projections by another $1.1 billion. The question of bank lending security will be compounded by the contraction in private sector credit putting great pressure on asset values, and by an expectation of further falls in Fonterra share values. It remains hard to explain the continued growth in agricultural debt other than being largely from conversion of unpaid interest to principal.