Rabobank NZ warns on potential impact to it from dairy prices staying low for an extended period

Rabobank NZ, which says loans to dairy farmers comprise more than half its total loan portfolio, is warning “very low” dairy prices for an extended time would see its loan defaults rise and potentially lead to higher loan loss provisions.

The specialist rural lender outlines this in its latest General Disclosure Statement.

“Since 30 June 2015 dairy commodity prices have fallen sharply from already low levels. Farm gate milk prices are now at their lowest levels since 2002. Loans to dairy farmers make up more than 50% of the Bank’s overall ($9.314 billion) loan portfolio. Very low prices for an extended period would increase dairy farm loan defaults and the potential for higher loan loss provisions in the Bank’s dairy portfolio,” Rabobank says.

This comment comes after Fonterra recently cut its farmgate milk price forecast for the current season by $1.40 to $3.85 per kilogram of milksolids. Fonterra is also offering farmers interest free loans with Dairy NZ estimating the average farmer needs a milk price of $5.40, which is $1.55 higher than Fonterra’s forecast, to breakeven.

Ironically, Rabobank also says during July it received repayments from a number of individually impaired clients that will “significantly” reduce its impaired asset balance.

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