Why Australia's banks should care about New Zealand's cows

Australia's banks might have ridden on the sheep's back, but they are now getting trodden on by New Zealand's cows.
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Dairy prices in New Zealand have fallen by more than half in two years, to levels which are less than break-even for many dairy farmers.
This forced BNZ’s parent company National Australia Bank (NAB) on Thursday to add new impaired assets of A$522 million (NZ$566m) for impaired assets in the NZ dairy industry.

Between February 2014 and March 2016, New Zealand dairy prices slumped 56 per cent.
The major bank’s lending to the NZ dairy industry comprises around 1 per cent of their total assets but exposures grew by around 10 per cent over the year to June 2015 and the RBA thinks they have continued to grow, as desperate NZ farmers seek access to working capital. Banks have largely been willing to support struggling farmers, with the NZ government putting them under some pressure to do so.
About 9 per cent of Australia’s big bank assets are in New Zealand. Most of these are home loans. NAB said on Thursday margins in the country were under pressure; its net interest margin in NZ contracted from 2.42 per cent to 2.31 over the half due to more expensive funding and higher competition.
Cash earnings were down in NZ to A$404 million (NZ$438m) from A$418m ($453m) a year ago.
Of NAB’s loans in New Zealand, 19 per cent, or NZ$13.6 billion, are to agribusinesses and of these loans, 62 per cent, or NZ$8.4 billion are to the dairy industry. But 64 per cent of the dairy portfolio is fully secured and an additional 38 per cent is partially secured.
‘Milk price stress’
Reporting its interim results on Monday, Westpac Banking Corp also pointed to «milk price stress» in NZ but said it was comfortable with its lending book because it had security over loans to family farms.
New Zealand’s finance minister Bill English told The Australian Financial Review last September most dairy farms have strong balance sheets due to significant increases in equity over the last decade but recognised rescheduling of debt would take place this year.
«We have been pleased to see the indications from the banks that they have a sound long-term view about the agricultural and dairy sector and they are willing, in general, to supply the working capital needed to maintain production and efficiency. The banks are being positive and their capital has been strengthened in a way that they have plenty of capacity to actually do it.»
Blue skies ahead for the NZ economy
Elsewhere in NZ, NAB’s metrics are tracking up. The level of consumer, housing and business lending and deposits are all trending upwards.
Dairy prices aside, NAB remains positive about the outlook for the NZ economy. Annual system credit growth has been strengthening trend since 2010 and in March, total credit was 7.2 per cent higher than a year earlier. Employment growth in NZ has slowed from its rapid rates but remains solid, NAB says. Unemployment is expected to stabilise in a 5 per cent to 6 per cent range.
NZ is recording record high immigration, booming tourism, solid consumer spending, positive business investment, a hefty construction cycle, and exceptionally low interest rates, NAB said.
«We forecast the economy to settle into a steady growth mode during calendar years 2016 and 2017, with [GDP growth of] 2.4 per cent and 2.5 per cent respectively,» NAB said.
NAB chief executive Andrew Thorburn said on Thursday: «Our NZ banking business produced a solid result this period despite challenges facing the dairy industry. While we remain confident in the robustness of the underlying New Zealand economy, against a backdrop of sustained low milk prices we have taken a proactive approach to provisioning for future dairy impairments.»
 

Source: Stuff

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Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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