Farmers spending up on equipment as ag outlook improves

NAB says farmers poised to capitalise on improving ag prospects

Agribusiness
Ned and Frank Deshon in front of newly erected exclusion fencing now protecting a Dorper and goat breeding operation in South West Queensland

Ned and Frank Deshon in front of newly erected exclusion fencing now protecting a Dorper and goat breeding operation in South West Queensland

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Strong demand for equipment finance loans has been a key trend across its farm sector according to National Australia Bank

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National Australia Bank says new equipment and vehicle purchases have been trending strongly among its farm sector customer base in recent months as producers take advantage of better seasonal conditions and prepare for a COVID-19 recovery.

Latest year-on-year data from NAB showed loans to the agriculture sector for equipment finance were up as up much as 81 per cent in South Australia and Northern Territory, 37pc in Western Australia, 27pc in NSW-ACT, and 41pc in Victoria.

The bank noted farmers had adopted a range of strategies including counter-cyclical investment, short-term enterprise switching and finding new markets to ride out drought and COVID-19 market disruption.

Most farmers had proven to be exceptionally resilient through the past two years of challenging conditions and were now poised to capitalise on improved conditions, said NAB agribusiness customer executive Julie Rynski.

"Drought, fires and COVID-19 disruption impacted farm businesses in many different ways," she said.

"NAB's customers have responded uniquely to the circumstances impacting their businesses.

"For horticulture producers, disruption to the retail channel has been challenging, but many have found a way to reach a market.

"Some of our broadacre and extensive grazing businesses have capitalised on balance sheet strength, and a long-term relationship with their bank, to exercise property expansion to access feed to hold onto a breeding herd or to fund short-term enterprise switches.

"Despite the view that cashflow would hamper recovery efforts, our bankers report that farmers have been sticking to their long-term financial plans and are able to finance herd rebuilding and sustain their full cropping programs."

Strong market fundamentals, long-term business planning and solid banking relationships have held many businesses in good stead, leaving them well positioned to seize opportunities as markets recover and seasonal conditions improve.

Despite several serious headwinds, the NAB Rural Commodities Index was up 4.6pc cent in August 2020 on a year on year basis, which Ms Rynski said reflected the sector's overall resilience.

"We saw livestock prices surge in early 2020 in response to average or above average rain in key production areas, with the Eastern Young Cattle Indicator reaching a record high of 772c/kg in mid-June."

Prior to this peak, livestock prices had remained relatively resilient throughout prolonged periods of drought and we're now seeing good restocker values.

"While strong fundamentals have certainly supported the sector, it's the long-term planning and strategic business management displayed by many farmers that has set them up well to now capitalise on improved conditions," Ms Rynski said.

"Taking an approach based on long-term understanding of business management, has given us the confidence to back many agribusinesses through recent challenges.

"We're seeing on-farm investments being made in infrastructure such as exclusion fencing to bolster and future-proof businesses, as well as significant diversification and business expansion.

"For some of our larger northern-based graziers, strategies to overcome livestock feed shortages have been based around landholding expansion."

For the Deshon family, shifting their core business focus from irrigated crops, expanding feedlot operations and building an exclusion fence, has been fundamental to the success of their South West Queensland enterprise amid challenging seasonal conditions.

NAB has supported the Deshon family to boost their feedlot operations through short-term trade finance loans.

The bank also funded new cropping gear camera technology, which identifies individual weeds for spraying, cutting chemical costs 70pc.

"Since starting to build our own fence, we now provide contract fencing work in the area, assisting others to build exclusion fences, too, which provides another source of cash flow," Frank Deshon said.

Investing in an exclusion fence had enabled the Deshons to re-introduce sheep production back into the business, reducing the risk from wild dog attacks.

In addition to now running Dorpers for prime lamb production, the exclusion fence had allowed the family to expand into breeding goats behind wire, further boosting the enterprise cash flow.

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The story Farmers spending up on equipment as ag outlook improves first appeared on Farm Online.

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