Ag spending and lending at new highs after good season and equity gains

CBA sees ag lending at record highs as farmers seek more gear and land

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Commonwealth Bank's agribusiness and regional banking executive general manager Grant Cairns at Beef Australia this week

Commonwealth Bank's agribusiness and regional banking executive general manager Grant Cairns at Beef Australia this week

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Rising rural property values, low borrowing costs and the federal government's instant asset depreciation write-offs have fuelled a farm sector buying spree.

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Fast rising rural property values, record low interest rates and the federal government's instant asset depreciation write-offs have fuelled a farm sector buying spree not seen for years says the Commonwealth Bank of Australia.

Healthier landholder debt to equity ratios, courtesy of higher land valuations, are giving farmers the confidence to start borrowing and buying again.

After a year of much improved seasonal conditions in many regions, plus robust prices across most crop and livestock categories, farmers are feeling emboldened to splash out and expand their landholdings, upgrade machinery or build sheds, silos and stockyards.

CBA's agribusiness and regional banking executive general manager Grant Cairns pointed to record high demand for equipment finance as indicative of farmer spending power at the moment.

The big spenders

CBA's finance loans for farm machinery and other equipment have hit a seven year high, with farmers in Western Australia, Queensland and NSW being particularly active.

Compared to the same time a year ago, CBA lending for new machinery purchases was up 83 per cent in WA, 47pc in Queensland and 30pc in NSW.

While the grain sector's investment appetite was most obvious in the equipment finance category with sowing equipment, harvesters and tractors at the top of the list, the trend was strong across the board.

Livestock and horticultural producers were upgrading tractors, transport equipment such as stock crates, and other machinery.

"During the drought a lot of our rural customers really sweated their assets and didn't have the confidence to take on extra debt to cover any equipment upgrades, " Mr Cairns said.

"As farmers now prepare for what is expected to be a significant winter crop production season, upgrading older machinery has become a priority.

"They're seeking to maximise their productivity while also racing to take advantage of current government investment incentives before the end of the financial year."

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He noted spending on quite a lot of equipment and asset improvements such as fences, silos and sheds had been rescheduled to take advantage of the temporary full depreciation write-off incentives extended in last year's federal budget.

"I was in the Lockyer Valley in Queensland last week talking with a farmer who was spending $1.5 million on a new shed and related equipment, having brought forward his original construction plans to qualify for the investment incentives," he said.

Some farm sector spending on new gear had also been motivated by the challenges caused by COVID-19 disruptions to supply chains and farm efficiency, including the availability of spare parts for old machinery, delays to repairs and labour shortages.

Yet, despite the pandemic's challenges and costly frustrations associated with recent China export disruptions in the wine, forestry and barley markets, the farm sector had escaped many of the setbacks experienced across the economy in the past year.

High levels of confidence, optimism and growth were evident in cropping and pastoral operations.

"In saying that, we know some producers are still doing it tough and we are working with customers affected by recent floods, cyclones and continuing drought to ensure they are supported," he said.

Debt worries on hold

Meanwhile, although strong commodity prices were also giving cashed up farmers the chance to pay down farm debt or scale back by selling into a hot real estate market, many producers appeared to be holding off making significant debt reduction moves at this point.

Interest rates were unusually low and manageable, particularly while strong commodity prices were generating good cash flow, and farmers' equity levels in their properties were rising.

For many, taking the chance to scale up was a more immediate priority than paying down debt.

Their expansion strategies were often being drawn up as part of farm succession plans involving a refreshing number of next generation family members opting to return to the farm.

"Current market conditions and opportunities in ag are providing young family members with plenty of the incentive to return home and grow the business."

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The story Ag spending and lending at new highs after good season and equity gains first appeared on Farm Online.

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