Solid third quarter result for Fonterra
Fonterra has announced an improved third quarter performance – with a profit after tax of $1.15 billion, up $119 million on the same period last year.
He told Rural News that in the light of this banks will take a pragmatic view of the industry. Jones says this is not the first time the dairy sector has had stress, but it is the first time it has run across two seasons.
“The banks will look at the cash requirement of each individual business, the equity position and the balance sheet and will make a decision on the holding cost of the business. It should be recognised there’s going to be a very limited buyer market,” he explains.
“The banks will take a holding position with those clients prepared to work with the bank. But for clients who see themselves as above having to work with the bank it will be quite a different story.”
Jones is starting to see a few of these relationships becoming stressed and says it is a matter of keeping the communications channels open and hopefully working through problems.
“But sometime these problems will mean a sale of the property at the end of the discussions and for some farmers the only light in the tunnel will be the train coming towards them,” he says.
“But no doubt the banks will take a pragmatic and considered view of how they support those industry participants [stressed about debt].”
Jones says the $8.40 payout gave a false sense of confidence to some dairy farmers. But a season with a sub-$5 payout and then potentially a sub-$4 payout was always going to be a problem; some of these farmers will have to exit the industry.
Jones doesn’t believe there will be a lot of mortgagee sales and that the banks will try to work things through with clients. He says the present situation will dampen capital gains in the agri sector.
“That is not a bad thing as the industry will focus on cash earnings to generate investment.”
