Low farm prices stall the economy

Low farm prices stall the economy

Spend to help the economy farmers told?

A different message is highlighted in this article in the NZ Herald from the ANZ, than what bloggers are telling us how banks are forcing land values down.

How farmers buying more farms at values ahead of their productive value, will help the general economy, I'm not sure. Agriculture's high indebtedness needs to be addressed before farmers can reinvest in more land.

Latest real estate figures will make interesting reading, as it appears a property syndication group has been very active on  dairy and dairy conversion purchases over the last two months, to the tune of $76 million dollars.

The issues investors  need to carefully watch from promised returns with these type of investments, are the costs to supervise from the syndicate group, how much of the future return is calculated from capital growth, and exit options from these medium to long term projects.

The boost from high commodity prices and improved terms of trade are unlikely to be felt across the wider economy until farm values stabilise and improve, says ANZ bank. NZ's terms of trade is up 20% on a year ago but rural land prices - down 25 to 30% during the past two years - are limiting the upside, ANZ said. NZ's food exports made up 7.5% of gross domestic product - the highest of the 80 largest economies in the world. But the property bubble had now burst and that meant farmers were focused on "recapitalisation" which was diverting spending from the general economy.

The ANZ Commodity Price Index increased 2% last month to a record high. Meanwhile, farm values relative to underlying returns suggested the property market was not far off a floor, the report said. On-farm input costs had also increased 35 to 38% during the past 10 years. Farm buyers and sellers were in a Mexican stand-off as people look to deleverage and catch up on maintenance rather than splash out on property. "Weather and pasture conditions and talk of restrictions on foreign ownership are also not helping the market and will only lengthen the time before the market stabilises," ANZ said. "To end the stand-off and see land values increase will require sustained high commodity prices over several years, low interest rates, with a pinch of good weather to lift production and confidence."

The Real Estate Institute of New Zealand said last month there had been a small rise in the number of farm sales and the median sale price was up on the same time last year. Latest figures from the institute are due out this week but a spokesman said the December figures for dairy farms were very encouraging with considerably more properties sold compared with the same period in the past couple of years and strong reported interest throughout the country.  DairyNZ's Mark Paine said "Farm property values have softened since then and people are making investment decisions based on the productive value of the farm rather than capital gain."

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24 Comments

Hang on Tony...I aint been saying banks are driving down rural prices!...quite the opposite.

Watch now as the banks pressure the OIO to let the money flow.

The Banks want the the farmers to wind up the borrow and spend again. Reminds me of the Toyota ad 

"well we would say that wouldn't we"

And here was me thinking that the level of rural debt needed to come down, that's what Bollard said wasn't it? Perhaps ANZ need to give him a call to straighten him out.

Mark Paine ; " .. people are making investment decisions based on the productive value of the farm rather than the capital gain . " ............. Well , that is a novel approach to farming .......... We'll have a crack at that , then .

................ Farming for a profit from the produce of the land ... Bloody amazing that we didn't latch onto this concept sooner ............

..... It'd be " game over " for property investors if this weird thinking spreads across to rental houses . ..... Ye-Ouch !

it appears a property syndication group has been very active on  dairy and dairy conversion purchases over the last two months, to the tune of $76 million dollars.

Are the banks and this syndicate colluding over prices for distressed farms?

You got that right CO...only the rort is to keep the market land prices as high as poss and if that means the banks play at being a syndicated group just to produce some glowing poodle media BS then it's game on.

Tat's great news - I ned a new traktor - a Furguson from Japan to turn the soil.

Wait long enuf Walter and we will be back to trading butter oil for Lada's.  You could get a real cheap tractor then! ;-)

CO - I do not want cheap I hve lot of land and monny, I want Furguson from Japan not Notgotom from China for turning over my soil and cow.

No surprise here, move along.

Remember that the current economic system is designed for continual "growth", i.e the ever expanding money supply model. When banks can't create new money (out of thin air) and loan it into existence, the system doesn't "grow".  That creates a problem. Worse for the banks still, is people start to repay debt, the money supply contracts and bank profits start to look bad.

Banks are more than keen to stoke the fires again, their long term existence depends on it.  The big problem for the banks right now is how to get people borrowing again.

How's about the stonecutters tell Bolly to tell JK to tell Cabinet to make up a new law dictating citizens what save too much have to borrow so much and splurge on property all in the name of growth and the betterment of those who really matter...the bank bosses.

Taked to the local Real estate agent, pretty grim out there lots of farms for sale no movement. Sold one orchard/vineyard in the last year and he thinks that area is about hit the fan. Very little interest in sheep farms, banks are not lending and many farmer are under surveillance by the banks. Many want to get out. I suspect the banks are putting equity partnerships together. I dont think the returns are there but at the end of the day its their money and you can always trust the bank.

 Having said that ,some friends with bull beef operations are making great margins and happy, they have family operations with little or no debt and scale, and like wise some friends who fatten lambs are fairly happy but there again no debt.,

Happy is being debt free. Should be a sign nailed on every farm gate and every front door. Children should be taught the benefits of thrift.......banks ought not to be able to operate like parasites on the back of the nation.....they sure as hell should not get the full support of govt and the RBNZ in their efforts to plunder the nation.

Agricultures high indebtedness needs to be addressed.........it does need to be addressed , but also the return to the farm gate does also. The figure of costs up 35%-38% correct but the returns only up 4-5% for the same period.

The issues are so complex, banks have only one answer that is to unload and too many farmers are bearing the brunt of it. When banks started to withdraw funding last year RDI had to carry 30 million of purchase of product to help farmers mainly Dairy guys. Have a look at fert companies sales figures over the last 2 years a big drop

Farm buyers and sellers at a mexican stand off...... I know a reale estate agent who for the first time posted zero income for gst return and this is someone that has the sales area nailed. 3 sales in the Tararuas district last 3 months. 1 hct,57 hct and 240 hct of scrub.People are being turned down by banks for funding that would have60-70% equity.

Bank changes are forcing values down, no doubt about that and the regulations introduced by NZRB have come about because financial sector needed reining in.

Casual Observer, simple answer yes they are. Previous comment of mine about an overheard conversation between bank and My Farms. Nga Tahu also investing in Dairy in a big way.

Is someone making the connection that farm expenditure helps the New Zealand economy, well I'll be buggered, I thought farmers were just polluters and rapists of the land.

Hi Janette, I enjoyed your letter this week in the Farmer and Straight Furrow. I fully believe the word serfs could be switched for 'children'. Sounds like a nasty battle ahead for you and many others. In the mid nineties we got caught out in a 'similar but not' scheme. I note one of the names in this current scheme is familiar too. A good few of our compatriots were sending fat cattle to the works and they received a bill instead of a cheque. At the time I learnt banks were nasty, really nasty, and should be used in a minimalist way. Unfortunately this meant we past by many opportunities to grow our business significantly.

Belle, for me your comments go to the crux of the matter. You had opportunities to expand but passed them up presumeably because they didnt stack up.You made an informed business decision armed with the known facts at the time. No mention of a bank manager standing over you with a gun to your head, because no one has had that.

Banks may have played fast and loose for abit and now are trying to pull back, hardly surprising the world has changed. Sometimes in business things just dont work out often through no fault of your own but those are the risks you take(or not).

I looked at a dairy conversion during the boom. Money was ridiculously easy to get but the figures were all done at $4.80 per/kg ms. To the best of my knowledge $5.37 was the lowpoint quickly followed by a $6.60 and a $7 plus this year by the looks.

I have no vested interest in sticking up for the banks but they seem a convieniant faceless scapegoat here. I have had afew less than bouyant years like many in our industry but I cut my cloth and stick within my OD limit,keep my bank informed with detailed budgets and have no trouble at all with them. Now prospects are improving dramatically and we are set to prosper. Perhaps i,ll send a letter to my bank thanking them for their support during the downturn. Im sure they dont get any thanks when things work out well!

  

 

To be fair SS, there was always a certain amount of trust by  farmers that as long as they met all their payments the banks would honour their side of a loan agreement.  The big difference now is that even if some farmers are cash positive with a surplus the banks are forcing them to sell because of debt to equity issues.

Banks may be colluding with some corporate equity partnership interests in their pursuit of certain farmers, who are meeting their obligations but have dropped in equity.  You may say that that is fair enough, but I remember the mortgage discounting that happened in the 80's because farmers were 'hitting the wall'.  A whole two years later and those same farmers were on the pigs back due to a change in commodity prices. You yourself are very positive about the future of farming so if we have another year or two of the prices we are seeing now, some farms may well be able to trade through their difficulties.

If I was a farmer who was meeting all my obligations but being screwed by the bank so that their mate who is a corporate EP company could pick up my assets at a heavily discounted price, I would be looking at taking a case to the banking ombudsman.  MyFarm play on the capital gain to be made by investors in investing in their farms.  If they or any other entity are cherry picking the farms they want for heavily discounted prices, with the assistance of the banks, well, it's just not cricket!

Despite my comments above, I do agree that any borrower needs to truly read the fine print and make sure they understand it, of any loan offer. The days are long gone when you could trust your banker to give you impartial advice.  Neither can you trust what your bank manager says verbally- if it's not in writing it's not fact. And yes I do have a good relationship with my bank manager. ;-)

Sheepshagger everyone is entitled too an opinion, Banks choose to be faceless because their behaviour flies in the face of all their marketing strategies, and none of them want to have transparency.

Reading the Sealord deals done with several banks trying to mitigate solvency issues on another site just shows what banks can do together to get a positive outcome for Sealords and all the people they employ. The same will to work together needs to happen with the rural sector so the rural economy can start too prosper as it should.Banks have demonstrated with Sealords that they can work together to find a solution.

Belle, the article I wrote got some people out of the wood work, can't say too much because one of the lords objects very strongly to me blogging.

Kia kaha Janette!

Do you know if the NZ Super Fund is investing in any of these 'distressed' farms?

Kia also make SUVs.

About a couple of months ago there was talk of about 400-500 million of Cullen fund being invested in land purchase over the next 4-5 years haven't heard anymore

SS, I guess you havent felt the wrath of a bank.  As soon as things turn, banks make the job harder... they lift the goalposts. Janette is right. Read and reread her posts. And dont think you are immune. If you owe them, they own you. Read and reread your mortgage deeds.  I dont blame the banks solely, but they have used their position whereby they have so much power to cajole, bully, and market money to the foolish.

Stay strong Janette. You are doing a marvellous job. Yes I imagine they will make your life very difficult if they can. The ******** wont want their brand sullied.  To SS, banks fulfill a purpose so that we can expand our businesses and prosper. This is not what they have done in the last 10 years. They have encouraged the masses into serfdom. It will destroy the future prosperity of our children.

 

 Hang on guys, prices are on the up and up.

 

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Global food costs jumped 25 percent last year to an all- time high in December, according to the United Nations, and governments from Beijing to Belgrade are boosting imports, limiting sales or releasing inventories to curb inflation. Commodities will keep rising, according to a Bloomberg survey of more than 100 analysts and traders

Cattle futures for April delivery closed unchanged at $1.1375 a pound at 1 p.m. on the ChicagoMercantile Exchange. Earlier, the price reached $1.166, the highest for a most-active contract since the commodity began trading in 1964. The wholesale cost of choice beef has climbed to a 30-month high.

Don't go to France Aj.  You will be richer for staying in NZ! ;-)

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