Rural debt appears to have topped $60 billion
Agricultural debt has likely risen above $60 billion over the last few years as dairy farmers monitor their income before topping up farm overdrafts.
Westpac's manager of corporate agribusiness at Palmerston North Dave Hutchisonsaid he thought the downturn in dairy returns over the past few seasons had contributed to a lift in agricultural debt.
"A lot of dairy farmers are still in the wait-and-see position," said Hutchison. "They are waiting for cash to come through and are taking a cautious approach."
Rabobank's Feilding manager, Asti Williamson said total farm lending was $58b according to data from the Reserve Bank that showed all bank lending in the rural sector and the rest was from agriculture services.
The data to June last year showed $40b was owed by dairy farmers and $13b by grain, sheep and beef farmers. The next highest group for debt was horticulture and fruit growing which was slightly more than $3b.
Bank lending had climbed almost $4b from 2015 and dairying had risen from $37.7b.
Hutchison said the bonus of the dairy downturn was that farmers and sharemilkers were talking to farming professionals more, including banks.
He said farmers were keen to reduce their debt and overdraft levels with any additional cashflow that came their way.
"We have been working with dairy farmers and the focus for us at Westpac has been supporting them. But there is no doubt, depending on debt levels, some were under pressure."
If a positive was to come out of the latest payout downturn it was that there had been a generally good response by dairy farmers in controlling farm working expenses, he said.
"The ongoing challenge will be to build and sustain businesses which can operate with volatility in price which will inevitably happen."
Hutchinson said anyone carrying too much debt before the dairy downturn would have struggled as milk prices hit lows and they may have failed to meet debt repayment schedules.
A few dairy farms were sold with farmers believing banks had put pressure on rural people with higher debt.
Hutchison said with the increase in milk payout, they and dairy industry advisors were asking farmers to keep production costs low.
"We have not seen prices [of production] skyrocket. And for many in the business community in the regions, it has been tough times. It would be nice to see them do better."
Federated Farmers Manawatu Rangitikei president, and Hiwinui dairy farmer, James Stewart said he agreed that paying off farm overdrafts was a priority for dairy farmers.
"As this is the most expensive money borrowed. It will take many farms this season to get the books back in order"
He said there had been a lot of pressure on dairy farmers over the past few years.
"However while we have seen some exit the industry it is nowhere near the numbers I had seen quoted early on by some commentators.
"This shows banks have been pretty supportive, but also realistic with the situation. Farmers are very aware of volatility and won't be rushing to change their systems too much just yet."
Most dairy farmers had fewer cows, and were choosing not to buy in supplementary feed, but to have it made on-farm and use more pasture.
Of the $60b owed by the agricultural sector, $40b of that was on a floating interest rate.