Rural round-up

November 10, 2019

Pressure on Jacinda Ardern over water quality amid farmer well-being concern – Pattrick Smellie:

Suddenly, farmers’ mental health is in the news again.

It’s not sensationalist or alarmist. It’s a fact.

A growing number of farmers are feeling massive personal pressure from several directions, with the greatest source of that pressure being felt as the Government’s agenda to make agriculture contribute to cleaner water and climate change action.

It may not be totally rational. Global prices for our key agricultural commodities are currently high and include a very healthy-looking dairy payout in the season ahead. Export returns are further assisted by a weak Kiwi dollar. . .

2020 Zanda McDonald Awards finalists announced:

Things are heating up for the prestigious Zanda McDonald Award, with one Australian and two New Zealanders announced today as the three finalists for the 2020 trophy.

The trans-Tasman award is widely seen as a badge of honour in agriculture, recognising passionate and outstanding young professionals working in the sector.

The 2020 finalists are Dr Elle Moyle, 29, from Victoria, Jack Raharuhi, 27, from Westport NZ, and James Robertson, 22, from Auckland NZ. The three were selected from a shortlist of six applicants, who were interviewed by the judging panel last month in Wellington. . .

“Farmers barely covering interest costs’ – Westpac boss David McLean :

Some heavily indebted dairy farmers are barely covering their interest payments despite relatively strong prices for several seasons, Westpac NZ chief executive David McLean says.

“The ones who’ve got more leverage, most of those are still covering their cost of production but some of them are close to the edge,” he says.

“Their interest cover isn’t that great – there are a lot of farmers who are doing it tough and there’s not a lot of buffer.” . . 

Dairy prices should bring some cheer as bankers get tougher on farmers and govt further burdens them – Point of Order:

The sun  may be shining  again  on  NZ’s  dairy industry:  spirited  bidding  at  the latest    global  dairy trade  auction  backs  up Fonterra’s move  last  month to  lift the  projected  payout  range to $6.55-$7.55 kg/MS.

The  average GDT  price  rose 3.7% to $US3446 a  tonne,  with the  key products  WMP up  3.6%  to $US3254, and SMP  6.7% to $US2924.

WMP prices, after dipping mid-year, have remained above the important $US3000/tonne level since July.  ANZ  in a market commentary   noted the auction outperformed expectations. Futures prices have steadily lifted since the previous GDT event in October. . . 

BioBrew delivers probiotic technology to support dairy farms:

CalfBrew improves profitability while reducing the need for antibiotics and other problematic synthetic inputs.

A small NZ company, BioBrew Ltd, has developed a novel approach to probiotics that delivers a very strong ROI and increases the sustainability of NZ dairy farms.

Developed with the assistance of Lincoln University and with funding from Callaghan Innovation and the Sustainable Farming Fund, CalfBrew delivers the finest probiotic technology available. CalfBrew improves profitability while reducing the need for antibiotics and other problematic synthetic inputs. . .

Meet the winners of the New Zealand International Business Awards 2019:

A Canterbury business creating a high-value, top-dollar future for merino wool has won the Supreme Award at the New Zealand International Business Awards 2019, leading a stellar list of category winners.

Based in Christchurch, The New Zealand Merino Company Limited is an integrated sales, marketing and innovation company for merino wool, and the world’s leading supplier of ethical wool through its accreditation brand, ZQ Merino.   

The company aims to help transform merino wool from a commodity into a high-value fibre, working with brands to create unique design-led and R&D-based products that incorporate merino wool, and in turn helping growers to get better returns. . .

 


Reserve Bank’s plan to cost farmers up to $8m/year more

May 7, 2019

The Reserve Banks’ plan to require banks to hold more reserves could cost farmers up to $800m a year in extra interest:

Estimates of the impact on interest rates range from the Reserve Bank’s own stab of 20 to 40 basis points up to the 120 bps estimated by the local arm of Swiss investment bank UBS, Federated Farmers says.

Multiplied across the agricultural sector’s $63 billion debt pile that would see farmers slugged for anywhere between $120m and $800m in extra interests costs annually.

“For farmers an increase in costs along the lines of the Reserve Bank’s modest estimate would be unwelcome enough while the worst-case scenario would be devastating,” the federation wrote to the Reserve Bank.

The bank wants trading banks to increase the minimum amount of capital they hold against loans from 8% to 16% within five years.

The increase is designed to ensure the banks have the capital needed to survive the write-downs on loans the Reserve Bank estimates would come with a one-in-200-years downturn.

Officially, the cost to the banks of meeting the new capital minimums is being put at $20b but banking sources believe it could be billions more. . . 

Ensuring banks survive a crisis is sensible but the Reserve Bank’s plan would require far greater reserves than ought to be needed and that will add high and unnecessary costs to loans.

Westpac NZ chief executive David McLean said shareholders in the banks’ Australian parent companies will not stump up that sort of money unless they can see a return.

In all likelihood that means interest rates would have to rise to offset the decrease in returns that would come with holding higher amounts of capital against the same amount of lending.

“We think the middle of that 80 to 120 basis points range is where it might come out but that is an average across all lending and it may fall differently across different portfolios of lending,” McLean said.

The increase is likely to be at the higher end of that range for agricultural lending because of the higher risk weighting applied to lending against farms, which historically experience bigger ups and downs in values and are seen as a riskier form of security than houses.

Because agricultural lending soaks up more capital per dollar lent the returns are lower for the banks’ shareholders relative to other types of lending where less capital is required. . . 

Should borrowers have to pay the price for safeguarding banks against a one in 200 year downturn?

The ANZ is warning farmers that if the Reserve Bank’s plan is implemented it will increase the cost of borrowing.

That in turn will increase the cost of production resulting in lower profits from farming and/or higher prices for food and fibre.

The Australian-owned companies which dominate the banking sector in New Zealand weathered the global financial crisis, why force them to hold such high reserves?


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