Thursday, March 28, 2024

Bank pressure builds on farmers

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The number of farmers feeling under pressure from their banks has risen from 16% to 23% in the latest six-monthly Federated Farmers banking survey.
Andrew Hoggard has resigned as Federated Farmers president and announced he will contest the general election on the ACT Party ticket.
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While most farmers continue to report they are very satisfied or satisfied with their bank the proportion in those categories has fallen from 71% to 68%, the federation’s economics and commerce spokesman Andrew Hoggard, says.

The loss of confidence is not surprising given banks are reportedly getting tougher and changing borrowing conditions.

They want to contain or even reduce their exposure to agriculture in advance of the Reserve Bank’s proposal on bank capital, due out on Thursday.

Examples of changed conditions putting farmers under pressure include new or increased margins, shifting from fixed to floating interest rates or vice versa, selling assets to repay debt, requiring principal as well as interest to be paid and more information or security being required.

The arable industry has the highest percentage of farmers feeling under pressure at 30% and also has the lowest percentage feeling very satisfied or satisfied at 60% though it also has the highest proportion feeling neutral.

Hoggard suggests that might be a result of poor to average recent harvests, competition from cheaper, imported grain and lumpy incomes inherent in the industry requiring larger, longer overdrafts.

In contrast, sharemilkers have above-average satisfaction levels and that might be related to lower interest rates.

The survey established the average interest rate paid across all 1300 respondents and all farm types reduced 0.4% to 4.6% between May and November.

Sharemilkers are only a little higher at 4.8%, down from 5.3%.

“So, it would appear that banks have passed on cuts to the official cash rate but this will also be a reflection of farmers who have refixed at lower rates after a few years at higher fixed rates,” Hoggard said.

Term loans and overdrafts are held by 81% of farmers and 19% have no mortgage.

The average overdraft is $214,000, down $10,000 from the May survey.

The average all-farm mortgage amount increased modestly over the past six months from $3.75 million to $3.83m.

That was driven by non-dairy farms, whose average mortgage increased by $360,000. 

As a trend, dairy farms continue to hold the largest mortgages by a factor of two compared to meat and wool farms and a factor of four compared with sharemilkers.

While the average dairy farm mortgage is $4.7m the median is $3.16m.

That means most farms have lower mortgage amounts in general and the average is increased by a few outliers with substantial mortgages.

The arable farm average mortgage went up from $2.8m to $4m but that was explained by the survey organisers as being because of the small sample size of 56 out of 1306.

ANZ is the banker for a third of the survey farms with mortgages followed by Rabobank at 21%, BNZ at 19%, ASB 14% and Westpac 10%.

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