Lending for the purchase of headers more than doubled in 2020-21 as land prices and business asset finance lending soared, according to two fo Australia's big banks
Business lending in the agricultural sector has jumped significantly while rural land prices are also surging, according to reports by two of Australia’s big banks.
Data from the Commonwealth Bank shows its overall business asset finance lending during the 2020-21 financial year was 20 per cent higher than the medians recorded over the past decade.
Agriculture was one of the key contributors to the increase, up by 50 per cent, with only aircraft and shipping plus earthmoving equipment outdoing the sector.
Within agriculture, headers were the star performer, with lending for investment in that product up by 120 per cent.
Commonwealth Bank also found business lending for seeders was up 72 per cent, harvesters had a 50 per cent boost, lending for tractors increased by 41 per cent and sprayers were up 21 per cent.
The bank’s group executive of business banking Mike Vacy Lyle says increased customer demand and government tax incentives have contributed towards agricultural businesses looking to invest and grow.
“While the operating environment has been challenging for many businesses for the last 18 months, we’ve seen some businesses (in sectors like agriculture and manufacturing) restock and invest in equipment upgrades, expansion of fleets, new fit outs or take advantage of technological advancements,” he says.
“Each business has its own unique demands and opportunities that asset financing can support – from sole traders looking to secure loans for a new vehicle, to listed entities looking to acquire a business via an asset backed structured facility.”
Meanwhile, the latest Agri Report from ANZ has described a surge in rural land values as reason for “both excitement and nervousness” in the industry.
During the past five years, rural land value growth has exceeded residential property value growth by an average of three per cent per year, the bank says.
ANZ’s head of agribusiness Mark Bennett believes the mix of high commodity prices and good seasonal conditions means very few farmers are looking to sell, driving up demand and therefore prices.
“Rural land values have been growing strongly for a number of years, including throughout the recent drought, and while this has been a boom for farmers, there is some nervousness about what this could mean for the industry,” he says.
“Sustained, stellar growth in rural property prices is boosting farmers’ balance sheets and prompting many farmers to expand their operations in light of the low interest rate environment, however this also appears to be attracting investment from outside the traditional farm buyers.
“With the gap between the value of farm production and overall rural property values continuing to grow, farmers and investors need to consider the potential implications longer term, as well as what it could mean for Australia’s overall agricultural output, noting that seasonal conditions will come and go over time, as will commodity prices.”