Content supplied by Federated Farmers
The level of investment required in modern dairy farming is underlined in the latest Federated Farmers Banking Survey, with the size of mortgages and the number of dairy farms with overdrafts increasing.
Across dairy and non-dairy sectors, three quarters of the 480 farmers who responded to the survey said they felt under the same pressure from their banks as six months ago. Eight per cent said they felt under more pressure and just under 10 per cent were feeling less pressure.
The twice-a-year Federated Farmers Banking Survey started in 2015. Research First conducted the November 2017 survey and results show farmers’ overall satisfaction with their banks remains strong and stable, with an average 81 per cent satisfied or very satisfied.
Federated Farmers Vice-President Andrew Hoggard said it was a positive that levels of bank satisfaction among sharemilkers had improved to be close to the industry average "as sharemilkers do represent the next generation.
"Some sharemilkers had been under quite a bit of financial pressure in the recent past but a shout out to them for working hard to get good financial processes in place. It’s great to see they have such high levels of budgeting.
"As usual though, farming isn’t plain sailing. With particularly dry conditions quite early on in the summer, it’s going to be important that if conditions get worse farmers are making pro-active decisions on the financial implications, and keeping accountants and bank managers in the loop."
New Zealand Bankers’ Association chief executive Karen Scott-Howman was pleased that overall bank satisfaction among farmers remains consistently strong.
"It shows that banks are continuing to work closely with their agri clients. That’s not surprising given the high level of bank support for the agri sector," she said.
"Constructive relationships are essential in helping to deliver good results for both farmers and their banks."
Four of five respondents to the survey have a mortgage, with the average across all farms increasing slightly since May from $3.1m to $3.2m. Dairy farms (89.7 per cent) and sharemilkers (97 per cent) are more likely to have mortgages than non-dairy farms (71.8 per cent).
Mortgage interest rates have been stable (average 5.2 per cent) and no respondent was paying more than 10 per cent mortgage interest, which is the first time since the survey began in May 2015.
Farming is a very seasonal business, with revenue often volatile. Just on 85 per cent of farms have overdrafts, at an average limit of $192,000. Overdraft interest rates are declining slowly, and the proportion of farmers paying over 10 per cent interest has decreased from 14.8 per cent in May 2015 down to 3.7 per cent in November 2017.
Andrew said it was encouraging that only a small minority farmers feel that they have come under undue pressure over the past six months and it’s also encouraging that this proportion (currently 8 per cent) has been easing back over the past 12 months.
The survey found that currently around 60 per cent of farms have an up-to-date, detailed budget for the current season. This proportion is particularly high for sharemilkers, at 90 per cent, with non-dairy farmers somewhat less likely to have budgets.
"Although currently low, we expect the proportion of farmers to have budgets for next season to increase as the season progresses," Andrew said.