Bank credit figures show farmers have cut debt by NZ$1 bln since September, appearing to bank much of their export price boom windfall

Bank credit figures show farmers have cut debt by NZ$1 bln since September, appearing to bank much of their export price boom windfall

By Bernard Hickey

Bank lending to farmers has fallen NZ$1.013 billion from its peak in September last year, Reserve Bank figures on sector credit for April show.

Fonterra is expected to pay out an extra NZ$2.2 billion to dairy farmers this year as a boom in commodity prices boosts farmer incomes, but doesn't necessarily boost farmer spending through the rural economy.

See more here in our article on Fonterra's payout.

The government and many economists have expected much of the windfall gains from high commodity prices to help boost the economy generally over the next year to 18 months, but there are increasing signs that farmers are choosing to bank the receipts rather than spend it.

Many have long memories from 2009 and 2010 when banks enforced spending freezes or increased lending margins. Some are also wary of a rise in interest rates later this year and early next year.

There is also the prospect that banks may further increase lending costs for farmers and tighten credit because of changes to the 'capital overlay' rules for farm lending due to kick in next month. See our earlier article here on farm lending rules.

The sector credit figures showed agriculture lending falling to NZ$47.249 billion in April from NZ$47.480 billion in March and a peak of NZ$48.262 billion in September last year. It is down 0.1% from a year ago. This is the first ever annualised fall in farm lending since the series began in December 1990 when farm debt was NZ$5.07 billion.

Meanwhile, business lending rose to NZ$73.359 billion in April from NZ$73.091 billion in March.

It is up 1.0% from a year ago, the strongest annualised growth in business lending since July 2009.

Bank lending against housing rose to NZ$171.832 billion in April from NZ$171.588 billion in March, which represented a 1.4% rise from a year ago.

Consumer lending rose to NZ$11.891 billion from NZ$11.828 billion and is down 0.7% from a year ago. Total household lending at NZ$183.723 billion was up 1.2% from a year ago.

This means business lending rose NZ$268 million in April, household lending rose NZ$308 million and farm lending fell NZ$231 million during the month.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Sharpen up Bernard - farm debt is seasonal and peaks in Spring. YoY to April 2011 agricultural sector bank debt is down by less than 0.1%. From $47,074 million in April 2010 to $46,041 million in April 2011. If you add Non Bank lending then it is down 0.11% - from $47,300 million to $47,249 million for the same period.

Forestry debt is though up by $200 million YoY or 19%, and food processing debt is up by $443 million or 10% - again for the same 12 month period.

Colin

Hmmm. I looked at what had happened in the last two September to April periods. Between Sept 2009 and April 2010 there was a NZ$113 mln fall in farm debt (vs NZ$1.01 bln fall this time).

Between September 2008 and April 2009 there was a NZ$2.958 billion rise.

So the trajectory has definitely turned down. Looks to me like farmers are saving the extra payout, or at least around half of it.

cheers

Bernard

And for balance, increases in farm debt for April to Septembr periods:
2009, $2,176 million increase
2010, $1,033 million increase

There is no question that growth in farm debt has flattened to near zero. Many farmers who can will be paying down debt, but in spite of the best season in decades the agricultural sector's debt is not diminishing in any significant way. That in effect means that for ever dollar of debt being repaid some other farmer is increasing their borrowing by another dollar.

What is going to happen when we get an ordinary season, or interest rates increase from their present average of 6.08%?

Only farmers are permitted to comment on anything regarding farming, even when farmers don't actually understand what it is they are commenting about. It doesn't matter that the non-farmer may be highly skilled and experienced, and a recognised world authority on the topic: if they're not a farmer, they don't know what they're on about and are forbidden to say anything about any of it.

Bloody townies.

Thanks Bernard. The changes you made to your article last night definitely added balance even if they made my earlier comments seem out of place.

Let's fix the numbers first shall we!....factor in the debasement and see what you get...the decline is real when you deal with real dollars.

Colin's numbers have not been corrected.

Those long memories spoken of go way way back and even the dog knows the Bernanke boom is a fraud and the prices can and will reverse just as bloody fast. Only fools are borrowing more right now and the really smart are paying down debt flat stick. They also know that inflation is on the rise and Bollard is asleep...QED when he is allowed to wake up, expect higher rates rising faster for longer.

This drive to encourage greater borrowing...deeper debt....is coming from the banks and their toadies in wgtn...they don't give a rat's arse about you or your business...it's all about parasitic profits for them...

The debasement since the start of the recession in 07 is now near 15%....by 2021 it will be another 30% plus....that'll be 45% decline in the spending power of the Kiwi$...that's what the govts and the RBNZ have managed....well done that man.

What do you expect from a man whose only job is to print more money (Allan Bollard)? By the way if anyone is interested in what the buying power of the NZD was here's what the Central Bank have to say about it.

Im a bit flush with feed, but the $ is now £ .50 , and I have to pay $120 to buy a lamb that with a bit of luck I can sell for for $150. But at $150 Im getting close to £.80. Ive never been a great gambler when the odds are so poor so Im taking the grazing option. As my neighbour was born with a Scottish heart, the negotiating starts now and ends in about a years time, thankfully we do get to laugh about it.

 A few farms have been forced sales these must affect the debt figures, my personal experience is that when I reduce debt, I get a tax bill like a phone number and get to visit the bank manager again. My friends in dairy are mostly putting in feed lots or upgrading sheds and efflent etc.

Ok, ive just rung a friend in the UK, on Exmoor. He is getting £100 for a 40kg lamb, or $200 nz, about £20 more than we are getting in NZ. He said farm prices are high as investors are buying land and leasing it. His farm, over 100 ft above sea level has gone from £3000 an acre to £6000 an acre. In Ireland land price have just dropped in half.  He thinks the sheep prices are dangerous and we are getting too much for our lamb. He is spending £200 every time he fills his tractor with diesel and thinks the profitability is not good at the moment for many who lease.

Suppose with people clipping ticket ,and transport ,our lambs landed in Europe are on a comparable plain,all done with no subsidies.Is that 40kg liveweight,otherwise we don`t export that weight .

Yep, thats 40kg liveweight. So with transport our prices are about the same. He's a little concerned that we were getting so much, thinks local fresh lamb should get a better premium.

 Also a warning that when Ireland got in trouble land prices halved, wouldn't want that, would we.

The banks have dodged a bullet this time - although not over yet. A lot of the lending 2008 is still there and needs at least $6.50/kgms payout to breakeven. Banks realise if they have a $6.50 payout or below in the next 1-3 yrs then high debt & below average clients wont make it. So still some pressure on those farmers to get out now. Not withstanding all that competition to lend and to borrow is heating up again. We all need to be more careful this time and allow for some risk factors.