Farmers’ use of livestock financing options is increasing steadily despite the much higher interest rates payable compared with two or three years back.
The going rate now begins at 11.95%, applicable to Carrfields One Stock products and to Heartland Bank Livestock Finance, two of the biggest loan portfolios in which farmers own the livestock.
The PGG Wrightson Go-Stock scheme differs, retaining ownership until sale, after which farmers get the trading margins less fees.
Heartland and Carrfields offer deferred repayment until the livestock are sold.
Federated Farmers meat and wool national chair Toby Williams said livestock financing options are 3-4% higher interest rates than mortgages from the major trading banks.
Therefore, it makes sense to use any grazing contracts or some working capital alternatives.
“Those are the ways most farmers fund their trading livestock purchases but the specialised finance offers are becoming more widely used, especially PGW’s Go-Stock,” he said.
According to the Federated Farmers annual banking survey, published last November, the average bank overdraft is 10.5%, about 4.5% higher than two years previously.
The average overdraft level in the survey was $320,000 and the median across all meat and wool farmers was $150,000.
Williams approvingly recalled the meat company lamb grazing agreements in the past, but a spokesperson for the largest company, Silver Fern Farms, said it does not now provide livestock finance.
Spokespersons for PGG Wrightson and Carrfields said the growth in farmers’ use of their livestock financing options has been exponential, over a relatively short period since those products were launched.
PGG Wrightson corporate affairs general manager Julian Daly said the number of farmer-clients using the Go-Stock service was close to 1000 in the 2023 financial year, versus only 120 in its first year.
Since 2016, Go-Stock has purchased 375,640 cattle and more than 2.5 million lambs, and the average annual growth rates have been 41% and 60% for cattle and lamb respectively.
Options for deer and dairy cattle financing have been added since the launch, along with a Defer-a-Bull option for dairy service bulls.
PGG Wrightson contracts are written for an agreed number of livestock, with maximum values, such as Go-Beef Max up to $1450, and client exposure is looked at on a case-by-case basis.
Daly said most contracts end positively for the farmers because they cover trading stock that generally increase in value as they gain weight.
A small number of Go-Stock clients were adversely affected by Cyclone Gabrielle and any losses of stock were worked through with the company.
Farmers are not required to insure the livestock under contract.
East coast farmers are using Go-Stock at present to restock without having to use capital that could be spent on infrastructure, he said.
Carrfields livestock national finance manager James McRae said trading stock finance extends over 12 months for the full purchase price plus GST with no establishment or management fees and fully repayable on sale of the animals.
There are breeding livestock options also, with terms up to five years and monthly principal and interest repayments.
Having worked for other financiers previously, McRae said One Stock is the best and most flexible offering in the market. He said farmers who have used it testify to that.
Carrfields has been offering livestock finance for four years; McRae cited commercial sensitivity when asked about the size of the portfolio.
The finance is provided by DLL, one of the world’s biggest commercial finance companies, not Carrfields itself.
Heartland Bank said it has seen a steady annual growth rate of 17% over the past six years and that this is a seasonal product with most lending growth occurring between March and June.
Heartland said its interest rates are consistently in line with other working capital products, specifically secured against livestock and not a mortgage against the farm.
Non-performing loans have not increased in the past year and Heartland has security management processes to guard against defaults.
Farmers can use any agents or purchase methods they choose and turn the finance into revolving credit if needed.
Heartland said there are no processing fees, only a small establishment fee, and applicants do not have to be existing clients of the bank.
The interest is added monthly to the loan facility, without requirements for regular payments, and when the funded livestock are sold, the proceeds are paid back to clear the loan balance including interest.
At the June 30 balance date in 2023, Heartland Bank had $191m out on loan to farmers for livestock.
This was at the end of the high season for livestock financing, which runs from January to June, the bank said.
It has been in livestock financing since 2007 and recently expanded in Australia, buying StockCo.
