Big season, good returns, cheap money drive ag spending spree

Bank lending leaps as farmers lead business asset investment rush


Commonwealth Bank of Australia reported at least a 50pc rise in new borrowings for farm equipment assets last financial year.


Labour shortages, government investment incentives and a bumper season across much of rural Australia have sent farm equipment spending spiralling to exceptional highs.

On top of a 17 per cent jump in its farmland lending balance sheet, Commonwealth Bank of Australia has confirmed at least a 50pc rise in new borrowings for equipment assets by farmers last financial year.

Lending to post-farm gate food processors and other value-adding businesses soared by more than 240pc, compared with 2019-20.

Low lending rates around 2.8 per cent, the rapid rollout of new agricultural technology options and a rush to get new gear ordered early to avoid delivery bottlenecks have also fuelled the farm sector spending spree.

Farm debt repayments have surged, too, as producers make the most of the good times to repair their business balance sheets.

Ag sector trifecta

"We've seen spending booms in the past when farmers came out of drought years, but this is something different," said CBA's agribusiness general manager, Tim Harvey.

"Agriculture is enjoying a trifecta of good seasonal conditions in most places, good prices across most commodity categories and record low finance costs."

People are incredibly positive at the moment - Tim Harvey, Commonwealth Bank

Although some areas were still dealing with seasonal and global trade difficulties, and the coronavirus pandemic had caused plenty of concerns, Mr Harvey doubted if investment in equipment and property had been so generally strong for decades.

"People are incredibly positive at the moment," he said.

Also notable was the way the farm sector had adapted quickly to deal with many of the challenges thrown up by COVID-19.

Big year for business 

Indeed, despite the big headache coronavirus has caused the national economy, CBA reported its total business sector borrowings for new machinery, vehicles and other asset upgrades in 2020-21 actually grew 20pc year-on-year.

It was the biggest year for new asset finance growth ever recorded by the bank.

CBA's business banking group executive, Mike Vacy Lyle, said although the operating environment was challenging for many, in the past 18 months sectors such as agriculture and manufacturing stood out as taking up the chance to restock and invest in equipment upgrades, vehicle fleets, new fit outs, or helpful technological advances.

Tim Harvey

Tim Harvey

As rain and good yield prospects returned to the cropping belt last financial year, finance for header and seeder purchases and leases was in big demand - up 120pc and 72pc respectively on 2019-20.

Mr Harvey said loans for new or second hand tractors lifted 41pc; balers and other non-grain crop harvesters 50pc, and spray gear 21pc.

"Tax incentives on asset depreciation clearly helped farmers make their buying decisions, but there's also no question the increasing labour shortage issue has accelerated a shift to more mechanical and automated options on farms," he said.


Some investments were for relatively logical labour saving technology for stockyards, shearing sheds or water equipment, while others were as significant as converting a dairy to robotic milking, or replanting an apple orchard in preparation for a new mechanical harvesting era.

Automation innovation

"I was recently on a southern Victorian farm where they're loving being dairy farmers again because the owners don't have the constant strain of finding staff or all the effort required at milking time - they've converted their shed to a self milking system," Mr Harvey said.

"On beef properties we have customers installing automatic weighing systems in paddocks to monitor weight gains remotely, which reduces herd stress and the labour in mustering and yarding."

Off-farm agribusiness investment had also created impressive trends in the meat, horticulture, dairy and grain processing and handling sectors.

Grain value-adding, including preparing crops for the fast emerging plant protein food market, had probably seen the biggest investment leap.

"There seems to be more attention being paid to onshore manufacturing," he said.

CBA's upbeat loan figures are mirrored by other lenders, with Rural Bank's eastern Australian sales head Andrew Smith noting "a quite progressive" sentiment and willingness to invest among farmers.

Cash in hand

In fact, when it came to buying new gear, he knew some farmers were so well cashed up they did not even need bank finance to cover the difference required after they had traded in their old tractors.

Andrew Smith

Andrew Smith

"You don't often hear of people having money on hand to pay for big ticket items like that," he said

Rural Bank's new lending for equipment finance grew 40pc last financial year, which, after adjustments for repayments, left its equipment loan book 27pc bigger than a year earlier.

"Normally we'd probably expect to grow by less than 10pc," Mr Smith said,

Demand for asset finance in 2021-22 continued in top gear, so far about 15pc up year-on-year.

"I think a lot of grain held in storage from last season has sold into a pretty strong market since early July, which has prompted farmers to start getting their new machinery orders in early because they know there's a long lead time for deliveries," he said.

"There's also quite a bit of activity from northern beef producers buying new machinery and livestock equipment after they've enjoyed three years of strong cattle prices."

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The story Big season, good returns, cheap money drive ag spending spree first appeared on Farm Online.



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