25 Jan Harvesting your debt – Another win for farmers

By Ian Robinson

For a lot of farmers, the harvest outcome was a mixed matrix of failure to satisfactory to somewhat rewarding after another challenging cropping year.  Broad base summer rains across a large portion of Australia have also cemented a floor in livestock prices with some buoyancy in the protein market delivering scope for optimism in 2024.

But more financial rewards are available to farmers if they willing to reach deeper into the financial foundations their business.  Farmers do not leave grain lying on the ground, nor leave livestock lost in stock routes or surrounding bushland.  The same should apply to the economics of their borrowing facilities that underpin the growth and liquidity of their business.  Hence, they should not leave money on the table for the use of borrowed capital.

There is circa $70,000,000,000 lent by the banks to Australian farmers that entail a wide spread of interest rates and fees contracted to the borrowers within their loan agreements.  If, on average, only 0.50% was shaved off the borrowing rate across the industry’s debt obligations, that would equate to $350,000,000 per year back in farmers pockets.  It certainly represents a big reward for those who wish to participate in a strategic review of their banking.  Also, a great reward for the banks if they don’t.

Farmers need to ask themselves the following questions:

• Are they experts in banking as they are in farming?
• Do they know or understand their credit risk rating?
• Do they know all the drivers that determine their risk rating and have they addressed them within the business or the bank?
• Do they know how pricing is calculated in commercial lending at a technical level?
• Do they know what rate they really should be paying for their credit?

More often if the credit is approved, the relationship with their bank is sound, and their rate is roughly comparable to their neighbours, then it is likely that their banking facilities are of secondary concern to their main focus of farming.  Understandably so as the daily demand of farming is a strong gravitational force to keep them out of the office an in the paddock.

Banking is not mystified in spin or proxy information, it is actually a clinical and scientific process that, once mastered, becomes as standardised as farming itself.  If time is the critical issue in trying to work through the credit maze, then it is more about surrounding yourself with masters of the trade to facilitate the strategic agenda of maximising the banking outcome for your business.

2024 is the year to have this discussion.  Feel free to call anytime to open the dialogue on how to minimise the cost of borrowings in a high interest rate environment.

Ian Robinson – 0448 697974