Hedging decisions risky
With an 80% likelihood the Reserve Bank will lower the official cash rate by 25 basis points next month, many rural borrowers are wondering if now is the time to look at fixing rates.
The call comes as prices continuing to plunge at the Global Dairy Trade (GDT) auctions, with predictions now suggesting that the current hard times could potentially last another 18 months to two years.
Crowe Horwath says given the scale of the challenge being faced by the industry, doing nothing is not an option for anyone involved, including farmers, banks, farm consultants and business advisors.
The company is encouraging a collaborative national response across New Zealand agribusiness to address the challenges and ensure farmers receive the best advice and support to get through.
Crowe Horwath head of agribusiness Neil McAra says the payout has dropped further and looks to be staying lower for longer than anyone expected and this means action is required.
Crowe Horwath has met with key players in the industry including the banking sector, farm advisors and rural support networks to help prepare a Best Practice Action Plan for its advisors to work through with their dairy clients.
“In the first instance as business advisors we need to manage financial stress, which means knowing what the banks need from our clients and ensuring we help them in providing this,” McAra says.
“Secondly, it’s about working with the other industry players to facilitate a comprehensive support network being wrapped around the farmer. Our action plan provides guidance along these lines for our advisors.”
McAra says a collaborative approach is vital with several key players needing to be involved.
“Farmers and rural professionals need to understand each other’s positions.”
“Rural professionals such as business advisors and farm consultants need to work with the farmer to ensure the relevant information is delivered and any changes to the business are made as required,” he says.
McAra says that while banks indicate that they will stand strong behind the rural community, they also expect farmers to look for areas where they can make savings and put in place tougher reporting procedures.
“The continued downward movement in the milk payout means farmers plans need to be flexible. They should be scrutinising costs and redoing their budgets, making sure they are accurate and realistic while also stress-testing them for different scenarios such as further payout falls or climatic shocks” says McAra.
Unfortunately given the severity of the downturn, this may mean having conversations with some farmers about a plan B, he says.
It is also important to remember that farmers will not just be coping with financial stress, says McAra.
“There is also the mental element of facing difficult times. We have been in touch with the Rural Support Trust which has spoken to our advisors about the various pressures farmers face and knowing where to access help for our clients.”
“On its advice we are encouraging clients to talk about any worries, look after each other, focus on controlling what they can control, eat and sleep well and where possible put a little fun and laughter in their lives,” he says.
