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Sharemilkers still feeling pressure from lenders, despite dairy price rises

Tuesday 13th December 2016

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A fifth of share milkers who responded to a Federated Farmers survey said they were coming under pressure from their bank on their mortgage, with 13 percent expressing dissatisfaction with their lender. 

Sharemilkers own their own herds and lease land for their animals from other farmers, focusing their investment on livestock and equipment. 

Overall, the latest Federated Farmers' Banking Survey found the number of farmers feeling under 'undue pressure' over their mortgages fell from 12.1 percent to 10.7 percent, while concern over overdrafts dropped from 9.2 percent to 8.5 percent. 

This follows the sharp rebound in prices seen in the GlobalDairyTrade auction since July, with prices for whole milk powder, New Zealand's main commodity export, rising by around two-thirds since the winter. On Dec. 8, Fonterra Cooperative Group raised its forecast payout for the season to $6.40, including dividends. 

That compares to the $4.30 paid out in the 2015/2016 season which included a farmgate milk price of $3.90 per kilogram of milk solids and a 40 cent dividend. 

Some 81 percent of farmers who responded to the survey said they were very satisfied or satisfied with their lender, up one point on the previous survey in August. 

However, Federated Farmers President William Rolleston warned the dairy industry was not out of the woods yet. 

"Make no mistake, the dairy industry is still going through an adjustment of sorts and it remains the most vulnerable of all farming sectors. It's no surprise the Reserve Bank continues to highlight dairy as one of the main risks for financial stability."

Concern over farmers finances seems to be turning to arable, as well as the sheep and beef sector, which is dealing with drought and volatile currency movements. 

"Drought, tough market conditions, and Brexit have added more uncertainty to the sheep industry and farmgate lamb prices have been affected by a persistently strong NZ dollar, especially against the British pound and the euro," Rolleston said. 

Earlier this month, agri-lender Rabobank said confidence in the beef and lamb sector had slumped. Speaking on Dec. 5, Hayley Moynihan, Rabobank's NZ general manager for country banking blamed a range of conditions. 

"Lamb prices have reached the seasonal peak, with the lucrative EU and Christmas trade now finished and returns have been around 10 percent lower than last year," she said. "While on the beef side, global prices are under pressure and the beef schedule is likely to worsen in 2017."

Half of beef and sheep farmers told Rabobank they expected their business to worsen in the coming months. In contrast, dairy farmers recorded their highest reading for business optimism since 2013, when the dairy boom was close to its height.

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