Thursday, April 12, 2007

Yeah, it's probably just consolidation...

Rabobank took the Australian ag lending market by storm a few years ago, fueling momentum to enter the US fray.

The historic drought is changing the picture Down Under, however. Rabobank officials credit a rise in farm debt to consolidation.
The consolidation of farming land into fewer hands has pushed up farm debt to a record high of $44 billion, rural lender Rabobank Australia said today.

The bank said the rate of debt was increasing by seven to nine per cent per year as land prices continued to rise.

James Robinson, Rabobank rural state manager in South Australia, said farms were getting bigger as owners borrowed to buy or lease the land of neighbours who retired or left the industry. [More]

This could be true. Frankly, I think it is about the disastrous farm income picture.
Government forecaster, the Australian Bureau of Agricultural and Resource Economics (ABARE) said in its latest farm survey results that farm cash incomes on average are projected to be $26,600 for 2006-07, down from an estimated $81,290 in 2005-06.

ABARE said this was the largest fall in farm cash income recorded since it started the survey 29 years ago. [More]
I think that's the spin I would put on it. However, lenders could even be more than a little involved in moving bad paper to the not-so-bad file by encouraging still-solvent farmers to buy out the strugglers.

Always remember, lenders tend to be "deeply committed" to apparent winners, not all borrowers.


Anonymous said...

Amen, John...! Having worked in the lending industry, I know firsthand the conversations that go on behind doors about which clients to keep, which to move out and which to focus your prospecting efforts on for the next year. Not surprisingly, more money chasing fewer farmers creates lower rates for those "apparent winners" and thus another competitive advantage.

When you wonder how that neighbor can afford to buy that piece of ground, remember that he is probably borrowing money at a rate that is 50bps lower than yours and the seed company is probably giving him 20% of his seed costs for free...makes that cash flow look real good!!

Anonymous said...

Ah, forgive me for my ignorance but I thought that is how business worked. Of course they show preference to the best customers!By the way, they are not "apparent winners" they are THE WINNERS.

John Phipps said...

My comment was more to contrast the public relations image of lenders versus the reality. I support their right to choose who they think the winners will be, and perhaps surprisingly have also embraced cool economically sound capitalistic answers for all problems.

It is sometimes not enough, I think