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Andrew Laming


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If You’re Thinking About Succession, Start by Redefining It

Jun 23, 2021 10:08:26 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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I was reading an article recently about the traits of some of the most engaged businesses based on a survey by Gallup. It was a global survey and started by noting that, “85% of employees are not engaged or actively disengaged at work. The economic consequences of this global "norm" are approximately $7 trillion in lost productivity”

Keeping in mind the NZ economy is about $USD200BN, that is staggering.

The article talked about the key traits of high engagement companies being:

Having a shared Mission – employees have a clear sense of where they are going and why and feel like they are on a journey together. 

People Development - Hire and set them up for success. Care for them, share information with them, build a plan for them, coach both strengths and weaknesses, and provide meaningful feedback.

Valued Voice: Trust between co-workers and leaders is so high that both sides are open to communicating ideas and information to avoid problems and create new solutions

Earned Trust & Benevolence: They live their core values both internally and with the external market rewarding those who demonstrate them and not tolerating those who don’t. The customer base and employees genuinely believe that the company has their best interests at heart.

 

It got me thinking about farming

And in particular- how engagement levels have been lowered by financial stress (albeit now improving) and now increasing compliance - something highlighted in KPMG’s recent Agribusiness agenda with the following statement “ a sector that is fatigued, straining to cope with the wide range of issues that is having to respond to on a day-to-day basis with morale falling”.

So, what does engagement have to do with succession?

Well, everything we say.

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Introducing The NZAB Agri Bank Dashboard

Jun 11, 2021 4:04:15 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Knowledge is power.

With that quote deeply in mind, we are proud to introduce the "NZAB Agri Bank Dashboard".

It's a quarterly snapshot on all bank movements, with source data from RBNZ.  

Why is this important? 

Well, understanding the forces at play in each bank gives us very strong direction on how we help our farmers more easily access capital, who from, plus the likely costs of that funding.

It also saves time for our farmers and puts energy into the right parts of your credit process, rather than chasing shadows in an increasingly complex world.    All of this so you can focus on what you do best- running your own strategy and your business effectively.

We'd love your feedback

Anything that you think might be useful, we'd love to hear from you!

We'll add to this dashboard over time - including things like a bank appetite index (diving deeper into each banks metrics for viability and security assessment). 

We'll put this out quarterly from here.

The version below is with data to the 31 March 2021.


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Bank Margins in Agri are Set to Get Very Interesting

May 27, 2021 8:32:21 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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The interest cost that you pay as a farmer is one of the biggest costs on farm that you will face. It is right up there with your feed/grazing bill and your wage bill. Suffice to say, it should demand your attention.

We are in a great period, with farmers enjoying some of the lowest rates ever.

However, whilst those rates have dropped substantially over the last few years, the range of rates being offered to different farmers in the market is now incredibly wide versus history.

Farmer A could easily be paying double that of Farmer B.

Within that we are also seeing some significant change in the components that make up your interest rate and can see some interesting movements coming up as bank appetite shifts into the positive territory.  

How you take advantage of that will require a specialised approach.           

Firstly, lets start with what makes up your interest rate.

To illustrate, let’s narrow this discussion to only floating rate lending.

Your floating interest rate is made up of three things - The underlying “base indicator”, the banks’ “liquidity costs” and the banks “customer margin”.

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Setting the milk price for your budget is not an exercise in picking the market

May 13, 2021 9:17:01 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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It’s that time of year when we’re finalising budgets for FY 22 and the ultimate question on all dairy farmers lips is: “what payout do we use for budgeting next year?”  

It is a much different landscape entering into FY 22 than it was in FY 21.   This time a year ago we were knee deep in COVID-19 and incredible uncertainty was evident in all parts of the world economy.  A common trend amongst most bank economists were milk price forecasts leading with $5 in front of it. When Fonterra finally delivered their opening forecast of $6.00+, it was met with mild jubilation (albeit noting the very wide range offered).

What a turnaround it has ended up being. At $7.60, being the current mid-point (milk only) with a sense of some upside potential, its going to be the second equal payout of all time.

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Changes in Agri Bank Market Share are Telling.

May 7, 2021 9:11:04 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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As you know we are very interested in the “why” when banks show differing levels of appetite in the Agri Sector.  

By understanding the “why” from a bank perspective allows farmers to better understand how they should navigate their credit and negotiation processes with their bank.

Knowing this allows our farmers to more effectively separate their strategy from what is good for their business and what is good for their bank which can, at times, be quite different things.

This short article looks at the impact of differing bank strategies since 2007 when lending took off quite aggressively in the Agri sector with the first “whole milk powder boom” and the very challenging volatility that followed.

These first graphs show how much capital each bank has leant to the Agri Sector (in total), since 2008.

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A Wave of Cash is About to Transform the Agri Market

Mar 31, 2021 6:56:24 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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We are in very interesting times right now.  

There are some big forces about to play out in the main trading banks operating in New Zealand. We believe this will culminate into a wave of capital that the Agri sector hasn't seen for the past 5-7 years.

That wave of capital coming to the Agri sector is going to have some interesting effects on asset values, funding costs and decision making.

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Are You Sure?

Feb 24, 2021 11:19:14 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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There are always some terrific ads at half time in the Super Bowl.  

Arguably the most prime time spot in American TV advertising, the cost of securing a timeslot is enormous. This year, a 30-second commercial for Super Bowl 54 in 2020 cost about $5.6 million. I don’t think you’ll ever see NZAB with an ad at the Super Bowl but who knows, we should dream big!

So, if you’re a company that’s up for that you’ve got to have a catchy ad. Some of the ads are comic genius, featuring some big-name actors along to boot.

Take one of this year’s ads from “Rocket Mortgages” – it was a cracker. The theme of “certain is better” was really simple and it resonated with us a lot.  

It starts with a couple about to bid on their first home before wondering out loud: “I’m pretty sure we can afford this?”.

Cue the entrance to a big-name comedian who then goes through various humorous analogies of the limitations of the statement “how can you be sure?”.  

You can see the whole clip here

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Could Political Moves to Stamp Out a Runaway Housing Market Have Big Benefits to Agri?

Feb 12, 2021 2:07:39 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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I love cause and effect. Squeeze a balloon and it will pop out somewhere else. Squeeze it enough and it will pop.

Banking is a bit like that at the moment, but for once in a long time, Agri may be set to benefit.

As you all know there’s heaps of noise about the housing market going up, lots of investor frenzy and yet again the purchase of the ubiquitous family home seems to be getting further out of reach for more families.

Its political dynamite – a hugely populist issue and one that the current Government seems determined to solve.  

 

Why do they need to make changes and step this up a gear?  “It’s the capital, stupid”

The Government has chucked a few traditional things at it (LVR restrictions) and ruled out a few others (capital gains tax), but they aren’t really working. They haven’t in other countries either. That’s because it doesn’t actually address the underlying issue - How ridiculously easy capital is available from banks in the home loan sector. As we say in the office - “It’s the capital, stupid”.

Big picture for a moment, there was massive stimulus last year with the RBNZ supporting the availability of capital to both Government and the Banks by continually expanding its Large-Scale Asset Purchasing (LSAP) to over $100bn (effectively printing money).  

A fair chunk of this money has found its way into the banking sector and the banking sector’s regulations and corporate profitability models are highly stimulative toward home lending. This is simply because:

  1. Its much easier to originate and serve a home loan (paint by numbers for credit departments and once set-in place, they don’t need much review) AND;
  2. RBNZ capital regulations mean a home loan is over 100% more profitable (at the same margin) than one to Agri or Business.

But is all that set to change?

There’s some big sound bites coming from this Government at present. Take these from Grant Robertson:

“We want to tilt the balance towards first home buyers while also incentivising more investment into the construction of homes”

“We all know that building more houses, particularly affordable housing is critical, but we can also do more to manage demand, particularly from those who are speculating”.

“It is the time for bold action. The market has moved quickly and rapidly in a way that is not sustainable – we have to confront some tough decisions and we will do that”

Now some of that will be referring to the upcoming changes in the RMA. But make no mistake, he’s about to make it way tougher to invest into housing (if you’re an investor purchasing existing homes).

Bank’s are feeling it too. They’ve become a lot more sensitive to the social impacts of lending. They don’t want to be seen to be encouraging the property market (via increased capital availability) to take it out of reach of family homeowners.  

So here are some new ways that we could see the Government influencing this, aside from more LVR restrictions:

  1. The Big Kahuna:

The RBNZ introduces (directed by Government) a second RBNZ amendment act – changing the mandate of the bank to include housing affordability alongside monetary policy and full sustainable employment.

To actually implement that, the RBNZ would then immediately increase the RWA (Risk Weighted Assets) requirements for banks’ lending to investor rental properties. In short, it requires the banks to hold more capital against these loans making them less profitable.

Cue much higher interest rates for these loans as banks find them less profitable.

  1. Make interest payments on housing investments non-tax deductible (excluding new builds).

I can hear the cries of “this makes no economic sense” straight away but the Government won’t care.   And they did it in the UK in 2017 to stifle property investment.    

This would immediately make housing less attractive.

Incidentally, it’s not as bad as it sounds (net impact might by about 1-2% reduction in cash yield), but this will put the frighteners up the investor market.   I would still expect new builds to be exempt from this.

And why is this good for Agri?

Well, the amount of capital in the banking system is not reducing.  

Think of that balloon again – you squeeze one area, its going to pop out somewhere else.   Make some parts of the lending sector less profitable for banks and they will examine the profitability of other parts of their portfolio more favorably.  

Agri is one of them.

Scale is important here - take the below graph showing the change in lending in both Agri and Housing over the last 12 months

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Start controlling your banking in 2021 with these keys to success.

Jan 21, 2021 9:01:48 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Welcome to 2021 everyone!

2020 was an interesting year for farmers. When Covid initially hit there was significant uncertainty as to the impact on soft commodities, it would be fair to say that things did not play out anywhere near where most market commentators thought or feared, myself included.

Early estimates of a significant retrenchment in Dairy prices were well wide of the mark and even though venison, lamb and beef went backwards, they still didn’t plunge the depths that some might have feared.

Being prepared for all eventualities is a smart thing as a year seems to be a long time in farming and economic cycles these days.

For those of you that managed to get away, we hope you’re well rested and fired up for the year ahead. For those of you yet (but about to) to take a break, we’re now jealous!

As we step into 2021, we thought we’d put out some of the keys to success when dealing with your bank. All designed to ensure you remain in control of your banking process and get the best possible interest rate.   This is not an exhaustive list but will get you started in 2021.

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NZ Debt Growth Distribution Shocker - C’mon NZ Banks and RBNZ!

Dec 15, 2020 4:35:11 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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