Tight bank credit is likely to prevent a fresh flood of sheep and beef farmers lured by prospects of high milk prices converting to dairying.
Jim Johnstone, a partner with Balclutha accountancy firm Shand Thomson, said bank officers had told him they were still lending to farmers, but their criteria were tighter than it was two years ago which helped fuel a mass expansion of the dairy industry reports The ODT.
"If a proposal stacks up, they are in the market to lend, and that appears to be the case for all banks, but they are returning to normal lending criteria," he said.
As well as tightening conditions on which loans were made, financiers were requiring farmers to focus more on improving debt-equity ratios and strengthening cashflows and balance sheets, Johnstone said.
This week, Fonterra announced it was forecasting an opening payout next season of $6.90 to $7.10 a kg of milk solids with the possibility the payout could go higher.In the past, that would have provoked renewed interest in converting land to dairying, especially given continued frustration at low meat and wool prices.
It is rumoured that about 30 South Island farms will convert to dairying for next season.
Environment Southland says 12 are in Southland. This is well down on the 87 which converted in the province in 2008-09.
For a small number of heavily-indebted dairy farmers, Johnstone said the higher payout would not protect them from wider financial problems.
He also warned against being overly confident at the sector's prospects, saying there was still plenty of market volatility.
"We have been there before, but I think people will be more cautious than they have been in the past."
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