12 minute read
Commodities drive up index
18 FARMERS WEEKLY – farmersweekly.co.nz – June 28, 2021
News Farmer debt landscape changing
Richard Rennie richard.rennie@globalhq.co.nz
AS THEY locked down with the rest of the country last year during the covid pandemic, farmers were also nailing down debt levels and focusing strongly upon principal repayments.
Amid this year’s buoyancy at Mystery Creek Fieldays, there was also an underlying belief among rural bankers that their clients’ spending spree comes as debt levels lower and balance sheets strengthen.
Latest Reserve Bank data on the rural lending to the end of March this year indicates the sector holds $60.5 billion in debt, down 1.6% on the same time a year ago, and expected to fall further in the coming season as strong commodity prices boost early season cashflows.
ASB’s head of business banking Tim Deane says there has been a complete shift in attitudes of farmers to debt, with expectations principal payments will be included from the start in farm loans and interest-only loans largely in the past.
Interest-only repayments on large farm business loans became commonplace through the mid2000s for several years, coinciding with double-digit capital gain values on dairy land in particular, pushing that sector to record $41b in debt in November 2018.
“We are seeing farmers embracing principal repayments, and they understand a strong balance sheet means a more resilient business and ultimately that means they will be in a position to make the most of opportunities as they come along,” he said.
Deane was adamant ASB had not shut shop in lending despite more debt being repaid and farmers with good equity levels were exercising their ability to take on new farm businesses.
“Our criteria for equity has not shifted much, we have been remarkably consistent and will definitely say no if the equity position is too low, or if cashflow will put too much pressure on the business,” he said.
Acknowledging the tendency of the dairy sector to capitalise stronger cashflow value into land value capital gains, Deane says this has been far less apparent now.
“We have seen a significant lift in dairy payouts, but dairy farm prices have remained relatively stable. People are increasingly focused upon cash flow, production, rather than farming for capital gain,” he said.
ANZ’s managing director for business Lorraine Mapu says farmer clients were recognising the capital demands likely to come in order to comply with sustainability demands, driven by regulatory bodies and consumer expectations.
“This could result in fewer cows, maybe lower output, so you need to have some headroom in your balance sheet for these requirements,” Mapu said.
Her lending staff were also seeing greater interest among farmers in diversifying their farm business, incorporating kiwifruit, for example, into a dairy farm operation.
A tool ANZ uses for mapping the farm’s spatial layout can highlight opportunities that not only provide an additional income source, but help mitigate the property’s overall nutrient footprint.
“In terms of succession, we are also seeing the younger generation of farmers managing to bring their older generation, maybe their parents, along with them when it comes to looking at opportunities and considering sustainability,” she said.
Mapu’s experiences are in sharp contrast to those her predecessor Mark Hiddlestone shared with Farmers Weekly at Mystery Creek two years ago. At that stage dairying was emerging from the hangover of high debt, tough climatic conditions and lower payouts from 2014 until then.
The bank was moving then to reduce its exposure to the rural market, which reached a historical high of 36% some years earlier. Today that share sits at about 27%.
The ANZ commodity price index is now at an all-time high, having experienced eight consecutive lifts, up 1.3% to the end of May, and coming despite a 1% firming in the NZ currency.
Chief executive Todd Charteris says Rabobank was sharing a similar reduction in interest-only loans, with significant portions of principal being repaid.
He says Rabobank was working hard on behalf of its clients who were struggling to source staff.
“We have engaged with the Government where we can to provide some background and views from on the ground about this challenge,” Charteris said.
Tim Deane ASB
PULLED ALONG: ANZ’s Lorraine Mapu says the younger generation of farming clients is drawing the older along the sustainable pathway.
High prices across sector drive up index
Richard Rennie richard.rennie@globalhq.co.nz
WITH the new farming year kicking off, high commodity prices are continuing to push positive views from analysts on the new farming year’s prospects.
Speaking at Mystery Creek Fieldays, ANZ commodities analyst Susan Kilsby says the strength lay across the board, with the exception of wool, and has pushed the bank’s commodity price index to an all-time high.
“Logs are the only commodity actually at their highest point. The other sectors are not at their peak, but rather it is just that all sectors have combined at the same time to be close to their peaks, driving the entire index up,” Kilsby said.
Log prices have increased by 25% on a year ago, with China driving demand just as global supplies of exported logs have tightened.
Up to May, the ANZ’s commodity price index had experienced eight consecutive increases, with the last one in May jumping 1.3% month-on-month.
Underpinning the increases is a steady lift in oil prices since the global pandemic’s peak, rising from US$42 a barrel in November to US$73.53 this month.
In the primary sector grain prices have experienced major surges in value, with wheat increasing from US$229 a tonne in March to US$278/t. Corn prices have lifted 19% from US$257/t in March to US$305 in May.
This has been largely driven by China’s efforts to restock its devastated pig population, recovering from the impact of African swine fever.
“They have a less efficient pig population, with stock that may not have normally been kept, requiring more feed per kilo of pork produced,” she said.
The Chinese pork industry is undergoing changes similar to what the dairy sector has undergone, with multiple smaller operators exiting the industry, and large European-style pork farming systems being installed to help improve productivity and reduce disease risk.
The trade war with the United States and the impact of covid on food supply lines has resharpened China’s awareness of its inability to completely feed itself, with the country doubling down on efforts to expand its production capacity.
However, Kilsby cautioned that New Zealand processors were facing real and lingering constraints to production that were taking the cream off what could be even higher returns. Global shipping costs have rocketed, while container supplies particularly for refrigerated units have been in dire shortage.
Globally, she says milk supply growth has been slowing, with increased environmental considerations affecting much of the world, with the exception of South America.
“There has also been a lot of talk about China growing its milk supply. I keep going back to the fact they do not have enough land and face constraints,” she said.
There is no cheap shipping for importing feed. The days of cheap backloading are gone.”
In the meantime, she doubts efforts by NZ to stop live trading in dairy cattle to China will significantly dent the country’s efforts to improve genetic stock, with stock likely to be sourced from Australia and Uruguay in future.
In coming years, she anticipates there will be more specific price signals paid to farmers for red meat supplies, reflecting the carbon footprint of rearing stock to certain ages.
“It is likely to be a bit like what the dairy companies are doing where they pay a premium for meeting certain targets,” she said.
“Sheep and beef are a bit further behind, and the longer-term trend is likely to be linking consumers’ needs to what is happening on-farm in the form of a more contracted supply agreement. Processors will have to price in at some point the emissions for different aged livestock. There is little incentive to do so at this point.”
Susan Kilsby ANZ
#AginED ED FOR FUTURE AGRIPRENEURS!
Volume 62 I June 28, 2021 I email: agined@globalHQ.co.nz I www.farmersweekly.co.nz
Why is Matariki celebrated?
Matariki is the Māori name for the Pleiades star cluster. It rises during Pipiri (June/July) and marks the beginning of the Māori new year.
Traditionally, Mãori iwi, or communities, would gather together at night during a time of the constellation's prominence, making use of the period between harvests to celebrate and make offerings for a bountiful future. When Matariki disappeared in April/May, it was time to preserve crops for the winter season. When it re-appeared in June/July its appearance was said to predict the success of the season ahead; clear bright stars are a good omen and hazy stars predict a cold, harsh winter. The brightness of each individual star predicts the fortunes of a specific thing that star represents, such as the wind or food that grows in trees.
Head to https://youtu. be/30V9_BUPt50 to watch a great video that explains what the stars of Matariki represent.
What are the Matariki star names?
Although there are actually 1000’s of stars that make up the pleaides cluster, and there are technically 9 stars that make up the constellation, there’s just 7 stars you can really make out with the naked eye. It’s these 7 stars that have traditionally been known as the 7 sisters, or the Matariki.
Can you name the stars of Matariki?
SIMPLE WAYS TO CELEBRATE MATARIKI WITH YOUR FAMILY A New Harvest
Use Matariki as a time to clear the winter vegetables, and prepare your vegetable garden for the new planting. It could become a family tradition to do the gardening all together – at least for one day of the year.
Tree Planting
Contact your local Department of Conservation to find out if there are any regeneration projects happening in your area. Organise to plant a tree on Matariki, or better still, get together with a group of friends and plant several.
DID YOU KNOW?
When Matariki does arrive it will be the last Matariki to go unmarked by a public holiday. Next year, Matariki will be celebrated on June 24 with a day off.
This graph shows the average 475-525kg Friesian bull values from the Feilding Store Cattle sale.
Have a go:
1 W What was the average value hat was the average value at the most recent sale? 2 How does this compare to last year? 3 How does this compare to the five-year average?
STRETCH YOURSELF:
1 Describe the typical pattern of values for this class of cattle at Feilding from March to September. 2 A line of 22 R2 Friesian bulls weighing 496kg sold well at $1465. How much did these bulls make in $/kg? 3 The heaviest bulls at this sale weighed 655kg and earned $2.82/kg. What was the per-head price of this line?
The bright & dark sides of the Winter Solstice
We’re at the peak of the long dark nights with the winter solstice now behind us. The winter solstice was at 3:31pm this past Monday and marks the shortest day of the year (or, to put it far more accurately: the day with the least amount of available sunlight). After this point the earth begins to slowly swing back allowing the Southern Hemisphere to receive increasingly more sunlight. However, temperatures are at their lowest usually a few weeks later with our coldest weather normally in July and August.
The solstice is a precise moment in time. So next week, yes, the days start to very very slowly get longer again…but only by a few seconds or minutes to begin with. (which you won’t notice for another four weeks or so).
When do you think that farmers and early risers will properly notice the longer days/extra sunlight again?
PASSING THE SHORTEST DAY OF THE YEAR:
BRIGHT SIDE
Days gradually start to get longer again from July The solar winter (the three months of the year with least available sunlight) is now more than halfway through You can tell yourself we’re on the slide to Summer (even if only in your head at this early stage!)
DARK SIDE
Usually gets wetter and colder for the next two months ahead Limited sunlight before and after school/work Increased risk of wind chill affecting livestock Higher risks of depression and anxiety due to Seasonal Affective Disorder (SAD) (And to help with that, turn on more lights, the brightness literally cheers people up)
What are your bright side and dark side lists?
e.g. Is it harder to get motivated to do your jobs/chores in the evenings since it gets dark early? Do you like it getting dark earlier as it is easier to get to sleep?
On the flip side:
Do some research and find out when the longest day occurs. Are temperatures at their highest at this point of the year? Why or why not?
BE IN TO WIN WITH
Head to www.honestwolf.co.nz and answer these questions to be in the draw to win an Honest Wolf wool cap! to be in the draw to win an Honest Wolf wool cap!
1 What is the name of the farm where the wool for
Honest Wolf products comes from? 2 What four colours do the wool caps come in? Simply send your answers to agined@globalhq.co.nz with your name, age, and school and we will randomly pick a winner. This competition is open for students 18 years and younger. Got your own question about how the weather works? Ask Phil! Email phil@ruralweather.co.nz with your question and he could answer it on the Weather Together podcast!
