Latest figures show agricultural lending hits a new high, while household borrowing continues to steadily climb again

Latest figures show agricultural lending hits a new high, while household borrowing continues to steadily climb again

The strongest levels of year-on-year lending for three years saw the country’s total agricultural sector borrowing hit the NZ$50 billion mark for the first time ever in February.

The latest Reserve Bank figures show that agricultural lending rose 5.2% between February 2012 and February 2013, which is the strongest rate of annual growth since February 2010.

Meanwhile, elsewhere in the economy, borrowing on houses continued its more brisk rates of recent times. Total house borrowing rose over NZ$700 million to NZ$179.38 billion in February, which is up 4.3% year-on-year – the highest rate of increase since December 2008.

And while in dollar terms the increase in February was rather smaller than the previous month, which saw house borrowing jump by NZ$952 million, it was the biggest increase in borrowing during a February since 2008.

Consumer lending was unchanged on the previous month at NZ$13.2 billion, though this figure was up 1.5% year-on-year.

Including the consumer figures, total household borrowing was at $192.58 billion, up 4.1% year-on-year, which was also the highest annual rate of increase since December 2008.

On a seasonally adjusted basis the rate of increase was steady on the previous month at 0.4% and continues the recent trend for stronger growth. The monthly rates of growth, however, are still far more modest than in the mid-2000s, for example, when monthly growth rates of as much as 1.5% were seen.

Total business borrowing jumped by over NZ$100 million to NZ$79.19 billion, which was up 2.5% year-on-year.

Westpac senior economist Felix Delbrück said there had been a “sharp uptick” in business lending, which represented a 0.4% rise on a seasonally-adjusted basis.

“Agricultural and other business borrowing both saw their strongest monthly growth in nearly a year - though for agri the pickup in borrowing probably reflects the hit to farmers' cash flows from drought (in seasonally adjusted terms agri deposits fell sharply over the month),” he said.

Household debt was once again rising faster than household incomes, he said.

“This month we also had an update of the RBNZ’s comprehensive annual household balance sheet numbers. According to these figures, over 2012 household debt rose 3.5%, whereas the RBNZ estimates that disposable income rose just 1.9% over the same period.

“This increase in household debt has been supported by rising asset values. We know from the RBNZ data that household financial assets rose 9.6% over the year, up from 3.9% in 2011. And we estimate that housing wealth has also risen strongly. As a result the estimated ratio of household assets to household debt is now the highest since 2007. Strictly speaking this means that households aren’t ‘leveraging up’ but simply tapping their growing equity. Of course, that doesn’t mean that recent trends are sustainable. Net wealth also increased in the early stages of the 2000s housing boom – and we all know where that ended up.”

Delbrück said the concern at the moment was that the recent improvements in household balance sheets have been significantly helped along by historically low interest rates, which have boosted asset prices and kept debt servicing costs low.

“We have also seen the phenomenon of ‘lazy’ deleveraging, where existing borrowers have taken advantage of low interest payments to pay off principal faster. If interest rates rise back to normal levels, we could see household balance sheets coming under renewed pressure on all three fronts – house prices would look increasingly overvalued, debt servicing costs would rise, and existing borrowers would find it much harder to pay off their debt than it has been in recent years.”

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19 Comments

One brave lad at CLSA has started to chat about it all.
Banks face more loan losses from their exposure to agribusiness, an analyst has predicted, as weak conditions and heavy debts take a growing toll on farmers.
After recent profit downgrades from Elders and Nufarm, a new report by CLSA banking analyst Brian Johnson says banks could bear the brunt of a slump affecting several agricultural areas, especially wheat and live cattle.
With the official forecaster also predicting lean times for farmers, Mr Johnson wrote that a growing number of agribusiness borrowers could come under pressure from high debt levels and falling land prices.
Mr Johnson's report argued that waves of bank loan losses in cyclical industries were caused by ''euphoric'' lending in good times, followed by credit rationing when conditions soured.

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''Australian bank agricultural lending portfolios demonstrate this cycle better than most, with loan losses set to rise,'' it said.

Read more: http://www.smh.com.au/business/hard-times-for-farmers-means-losses-for-banks-analyst-predicts-20130401-2h313.html#ixzz2PG3emmwF

' to infinity and beyond', growth in agriculture has no limit.
 
 Henry isn't it odd that debt went up when farmers were killing so much capital stock, even the  dairy cow kill is way ahead of last year. Must be investing in increased production :-).
 My farming friends tell me what happening at present with the dry is a 'game changer'. Black swan event, at least for them.
 
 

. In New Zealand, this season’s 

cow slaughter is 76.7% ahead of last year and 52% 

higher than the 5-year average slaughter pace
http://www.milkproducerscouncil.org/updates/032913.pdf

Agree about the potential for it being a black swan event - how many farms (whether privately owned or corporately owned) have the equity in them to last out the recovery period .. we're talking years and years I suspect. 
 
As Hugh P points out - when you get the land price wrong - everything about the market becomes distorted after that. I cannot imagine that the big reset is very far away. I wonder whether a lot of the blame for the ill functioning of market pricing of land is down to Landcorp. Someone should make a chart of the growth in their land holdings over the past two decades. 
 
 
 

Kate, Ive just been talking to a consultant, he thinks by the end of this winter, %30 of capital stock will have been killed, and its going to be an animal  welfare nightmare, especially in the dairy industry.
 What should be happening is grain  importsfrom Australia, under a per tonne subsidy from the government.
If this is alowed to follow the natural course of nature, then next  years exports are going to take a big hit as breeding stock is retained, in fact a huge hit.
 We would be better off as a country buying grain and stopping roading development etc, until ag nz recovers. We should be trying to keep cows and ewes, alive on farms for next year.

This government just simply doesn't get it. Unbelievable really given the position Bill English holds. But then, look at Conor English's most recent media release ..
http://www.voxy.co.nz/business/times-tough-farmers-are-still-hiring-fed-farmers/5/151269
We're still hiring .. I mean .. it's laughable.
But hey - there's plenty of feed available .. lookie here ..
 http://www.fedfarm.org.nz/Files/Drought-Feed-List-14.pdf

the good old bad days...

"One has to question the banks' responsibility for this farm crisis. The old Rural Bank guidelines - that you borrowed no more than four times your gross income - debt servicing was limited to 25 per cent of your gross income and the number of farms you could own were monitored by the Land Aggregation Act.
 

Andrew
I think the best thing government could do is provide interest free loans to farmers in need, with agreement to payback in 12 months. Roading developments etc are good for our econonmy as are student loans. Farmers make good money that they can pay back, but i agree they need some support

Donker, govt loans interest free is not a good idea, based on what happened to ballet farmers in our area in the 80s. Last of them pleaded with govt when reforms and high interest impacted on 'them' (and every other farmer). Interest was written off. Result tennis courts, and buying extra land. What's more didn't stop them cashing in  on cooperative dairy structure (some of whom converted when shares were nominally valued) reforms.

You make the assumption that this is a one off, what if it isnt? (and it isnt).  The predictions from AGW are more frequent and severe weather events, so one year drought and the next flood will become more common and severe  Hence these bailouts will become more frequent and larger, so I fail to see why the tax payer should bail out ppl who refuse to adjust to the new paradygm they denied was happening.
regards

So this Govn and indeed many farmers and their successive mouth pieces have denied AGW and here we are with changing conditions. Meanwhile farmers are trying to force the land to produce yet more output  per hectare and are caught out.  So now there is an expectation for the tax payer to bail out those who have acted rashly. The change in climate will cause more and more of these events and they will be worse but it will all be OK "next year"....but instead of changing tack and following and making the systems more robust, its hand out time.
So the whinners about welfare and nanny state now expect the same thing when much of it is their own greedy, willfully ignorant, politically blinkered fault.
Oh and what happens when everyone (world wide) wants grain? and the droughts and/or floods have reduced output? and the choice is feed ppl or animals?
The problem is the over endevour to optimise the system to maximise output which means less flexibility and resiliance, but thats OK someone else can pay to cover the off years.
Great....just great.
regards
 

Agree. Even if cap stock around the dip in pasture production and time needed to re sow performance ryegrass means the production from past best growth years ever is further away.

It feels like that $8 tide that has bought on marginal land is flowing back.

What looked doable in good growing yrs and high payouts is now dealt with double or poor pasture production and low payout forecasts. Plus loans with swaps and or risk adjusted % rates. Even Synlait farm has $6m of derivatives liabilities....

Fiddling while Rome burns? Who knows but ever more no rain. The bbq has definitely got into the macrocarpa and some fancy footwork needed pdq. In oho.

The ag-sector figures, being bulked-up sums are practically meaningless without at least some analysis into:

  • how much is for increasing inventory e.g. moving from extensive to intensive and buying in more stock.
  • for conversions (e.g. crop to dairy or as I suspect some may be plotting, vice-versa) - true capex in other words.
  • for propping up current costs (usual overdraft/working capital lending) to handle the current input cost spikes

The first and last are simply moving pieces on the ag-sector table:  only the second shows any structural possibilities.....

Ag debt is up about $35 billion over 10 years. Approximately 65% of ag debt is dairy - say $23 billion.
 
Over that 10 year period the number of dairy cows increased by less than 1 million and the effective area in dairy by 233,000 ha. Debt per cow though has gone from $1,700 to $7,000.
 
Little of the increase in dairy industry agricultural debt has gone into inventory (more stock), or converting land to dairy farming.
 
Putting aside the myth that increasing agricultural debt mostly represents productive investment, all other explanations are ugly.    

All for a less than 10% increase in MS production per cow, and with each additional cow coming at a cost of close to $25,000.
 
And of course all to DairyNZ/Fonterra's dairy industry strategy.

It is actual claims and not facilities:
 
http://www.rbnz.govt.nz/statistics/monfin/c7/data.html
 
That is only for the registered banks - non bank financial institution lending adds a little more. On top of that there are other sources (e.g. family) - possibly another couple of $billion.

You shouldn't find it hard to clarify. Ring the RBNZ tomorrow and let us know if they tell you that your interpretation is correct.

 Based on Feb 12 to Feb 13 figures, it cant involve buying feed for the drought. So where has the money been spent and why. I thought we were all deleveraging, sounds like we are burying ourselves in cement and then chucking ourselves in the ocean for good measure. 

Unfortunately when everyones got to kill stock the price goes down, the extra stock we have to kill doesnt go any where near compensating us for the lost income as a result of the drought , hence why theres no reduction in OD's when we are forced to kill capital stock

The debt keeps gorging itself on McDonalds, feels good, but look at the bubble gut......man that's going to take some work to get rid of