One local financier said a few years of profitability in the farming industry would help companies get through the “tough” year ahead, but not all companies.
Agriculture-focused Rabobank will launch a series of free financial skills workshops for farmers across the country starting next week, following high demand from customers for further advice.
They were intended to help farmers understand their numbers for the current season and plan for when cash flow deviates from budget.
Chief Executive Todd Charteris said rising costs and interest rates are hurting farmers’ profits, but some farmers are storing their nest eggs for rainy days.
“Many businesses that have benefited from the strong cash flow and performance of the past few years can rely on it, but people are making difficult decisions about where to spend and where to put their money. What you are doing.
“It’s going to be a tough 12 months, but there’s no doubt about it.”
Ann ASB Product Report A survey earlier this month showed that while key agricultural input costs should ease and strong population growth should ease labor shortages, debt servicing costs remain high.
Charteris said astronomical costs for fertilizers and other items have come down from their highs caused by the coronavirus pandemic, but cash flow remains tight. But he said this hasn’t led to a sharp increase in piling loans.
“At this stage, we certainly don’t see a lot of examples of people having to build up capacity, and we’re really capturing that within the current working capital capacity,” he said.
“Over the past few years, the profitability of the agricultural business has been so high that it has created a lot of leeway and liquidity in the banking establishment, which, if anything, has eaten up some of that leeway.
“Companies are reviewing their numbers and re-forecasting.”
A blow to the whole economy
Campbell Wood of AgriFocus, an agricultural financial management service, said the brakes on agricultural spending would slow the economy further this year.
“What everyone needs to keep in mind is that there will be a significant drop in money flowing into the economy from the agricultural sector this spring.
“They will need to tighten up to make ends meet, so I think the influx effect will be quite large.”
Earnings have been under pressure this season, especially for companies leveraging debt, Wood said.
“With interest rates more than doubling in the last 12 months, it’s undoubtedly the companies with the highest debts that are feeling the most pain right now.
“Right now, it costs a lot to fully staff a farm, which is extremely important and necessary, but it certainly does some damage to the bottom line.”
Rabobank’s one-day financial workshop Free and open to non-clients – Kick off next week in Stratford, Taranaki.
https://www.rnz.co.nz/news/country/490228/financial-workshops-for-farmers-launched-ahead-of-tough-year Farmer Finance Workshops Launched Ahead of ‘Tough’ Year