Farm price blues stay as in­vestors still wary

South Waikato News - - RURAL DELIVERY -

Farm­ing in­vest­ment will be sub­dued for an­other three to five years, says a lead­ing ru­ral banker. Char­lie Gra­ham, man­ag­ing di­rec­tor of ru­ral bank­ing for the ANZ-Na­tional group, which holds $19 bil­lion of farm­ers’ debt, said al­though farm val­ues had slipped 20-25 per cent in the past two years they may still have some way to go.

‘‘A lot of farm­ers with very strong bal­ance sheets are look­ing around but they are not pre­pared to pay the prices on of­fer,’’ he told The Do­min­ion Post.

The Real Es­tate In­sti­tute has re­ported that only eight dairy farms had sold na­tion­wide in the past three months but said in­ter­est was perking up on good news of ris­ing in­ter­na­tional prices. How­ever, the in­sti­tute said buy­ers were be­ing price sen­si­tive and warned sell­ers ex­pect­ing to re­alise the val­ues of two and three years ago would be dis­ap­pointed.

Mr Gra­ham re­jected the view that banks had con­trib­uted to soar­ing dairy farm val­ues by en­cour­ag­ing lend­ing. ‘‘We do a credit as­sess­ment on long-run eco­nomic fun­da­men­tals. When the dairy pay­out was at the $7.90 level we were never bud­get­ing on that, we were in the mid fives, which we thought was re­al­is­tic for the long term.

‘‘For a va­ri­ety of rea­sons some of the num­bers haven’t stacked up but I don’t think you can point the fin­ger at any­one in par­tic­u­lar. An as­set bub­ble built up and land prices got out of kil­ter with the eco­nomic fun­da­men­tals.’’

This ero­sion of land val­ues had put some farm­ers in a vul­ner­a­ble po­si­tion but most farm­ers’ bal­ance sheets were still strong.

‘‘You have a small pro­por­tion of farm­ers who have too much debt but they’re work­ing at the per­for­mance of their farms.’’

How­ever, a smaller num­ber had no fu­ture and they were go­ing to have to sell up.

Some dairy farm­ers were get­ting a good re­turn on as­sets, as much as 7-8 per cent and they were us­ing that to ei­ther re­duce debt or build up a ‘‘war chest’’ for when land val­ues be­came more re­al­is­tic.

Of sheep and beef farm­ers, 20 per cent were mak­ing re­turns of 6-7 per cent.

‘‘Un­for­tu­nately, 80 per cent aren’t mak­ing too much at all.’’


LONG DROUGHT: Ru­ral bank­ing leader Char­lie Gra­ham thinks any re­cov­ery in farm prices will be slow.

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