Our Insights

Payout Pain: Focusing on what makes a difference!

Aug 22, 2023 1:55:04 PM / by Scott Wishart posted in Debt, Action, Planning, Budget, Banking, Strategy

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Following on from our article last week on being proactive around payout, we have been asked to share some of our observations around what has and hasn’t worked in the past. We’ve been here before after all!

Let me reiterate, a good business going into a tough year is still a good business. It’s not so much about getting through (although that is the first priority!), it’s about positioning your business and your mindset to be able to bounce strongly forward when profits return.

They say never let a downturn go to waste, and these environments are opportunities to showcase to your bank how effective your management and governance really is. The banks do a lot of stress testing of what might happen in certain circumstances, and this year may well be one of those years that looks like the stress test scenario.

What works:

  • Facing into the realities of your situation as early as possible.
  • Being honest with your bank and keeping communication lines wide open
  • Challenge everything. Treat each dollar like a prisoner!
  • There is a big difference between being optimistic, pessimistic and realistic. Being realistic is the key. This is not the year to target levels you haven't yet achieved.
  • Go back to basics. Are you using the physical resources around you to the best of your ability?
  • Get positioned for opportunity. What can you do differently if the payout jumps back up later in the season to capture more profit, but also defend the line if that doesn’t happen?
  • If you don’t have experts around you, seek them out. It can be as simple as tapping into a neighbouring farmer who you think does things well.
  • Selling ‘non-core’ assets can help. These are assets that don’t contribute to profit in any way. But there are often lots of reasons why we have these assets other than profit alone, so be realistic!

What doesn’t work:

  • Blaming the bank. Yes, interest rates are back to some of the highest we have seen in recent times, and if they weren’t then we would be likely still making a profit this year, but that’s not something that’s in your control. Yes, interest rates are negotiable, but from a position of strength not weakness. (ie, if you need a lower rate in order to be viable, the bank isn’t likely to see that as a good risk for them).
  • Putting farms or blocks of land up for sale that you don’t intend to sell. We saw a lot of this in 2016/17. It was a strategy to keep the banks happy, and it probably worked for a few for a while. But then the blocks didn’t sell, and the relationship got tougher. If it’s not a genuine option, don’t go there.
  • Setting tight timeframes on assets you do wish to sell. (And this is aimed at the banks as well!) Clearly, the farm real estate market will be slower this year. If funding approvals are based on requiring a farm property sold within this season, there is a very high chance that strategy will fail, so be realistic!
  • Focusing on production over profit. This may well be the year to produce a lot less milk and reduce the loss rather than maximise the output. But the answer to that lies in a clear understanding of your key drivers of profit and longer term strategy.
  • Relying on Farm Debt Mediation as a way to solve any problems. Mediation is not a place to air grievances or negotiate a strategy, despite what you may think. It is a place where a ‘very final’ plan gets negotiated and agreed. You should never go to mediation without a clear plan that is 90% already agreed with the bank, or you’ll find yourself backed into a corner. And for the banks, don’t use mediation as a tool to force a predetermined outcome!

Putting it all in context is important:

Milk price margins do return to average. 

If you need re-assurance on this, take a look at our analysis of the last 20 years milk price margins. Click here to read our recent article on this We have had some great years, some horrible years, but the average is consistent.  

Costs do retreat too!

We are seeing fertiliser in full flight downwards, as are core feed supplies. Take a look at this article where we looked back at where costs retreated after previously high levels brought about by high payout. Farmers are very responsive to managing costs in the light of falling returns.  

Build a medium term forecast.

With the above in mind, once you have dealt with the short term realities its  time to start making a medium term plan for the business. Lean heavily on your advisors to help with this. How will the business return to more normal profit levels? what funding do you need to get there? What changes could you make to how you operate?

Show your working.

One of the best things you can do to gain confidence from your bank is to show them in detail what changes you have considered, especially the ones you didn't think were worth moving forward with. It demonstrates that you are thinking about all of the possibilities, and you are able to make clear decisions.

We are here to help. NZAB has a team of over 30 banking experts ready to help you work through this next period. If you would like to discuss any of the above, please get in touch.

We’d love to help. We’re all about better banking outcomes, so if you want to review your business to understand where you might sit, drop us a line today on 0800 692 212, email us directly, or fill out this form and we’ll be in touch.

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Payout Pain: Get Proactive!

Aug 11, 2023 11:31:31 AM / by Scott Wishart posted in Debt, Action, Planning, Budget, Banking, Strategy

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Most of us in the industry are again catching our breath and digesting the impacts of a significant reduction in dairy payout for this season. The impacts of this are quite real.

But we have been here before. Ironically, this has become a bit easier to navigate now, because we have gone from an environment where only a few farmers were struggling to make the budget work, to one where most will require additional financial support. This is now an industry-wide issue.

The Banks are continuing to support their clients but need to see a proactive approach to managing costs and minimising losses. You can assist this by demonstrating that you’re in control and are making quality and timely decisions.

Fundamentally, good businesses will remain good businesses. We’ve already seen significant reductions in costs from where they were earlier in the year, and we expect to see businesses bounce back quickly from this.

But for now, here’s the plan of attack:

  • Face the realities. Reforecast the cashflow now and get a clear understanding of the impacts. The first critical piece of information required is ‘do we have enough cash’? If not, when do you run short, and by how much? Get this in front of the bank as soon as possible. You’re not looking to have all the answers at this point but getting the ‘worst case’ out on the table quickly helps to frame up the size of the challenge in front of you.

  • Make a list of the areas to investigate where you might be able to cut or defer costs. Turn this into an action plan. What are you considering, what could it save in the short term, what are the long-term implications of making these changes? Give this to the bank along with the cashflow above.

  • Keep acting with confidence. We know that the payout and market conditions can change quickly, so you need to keep focusing on the key activities to ensure we are positioned to spring forward out of this situation when the opportunity arises.

  • Once you’ve developed a more detailed plan, sit down with the bank, and review it. The bank will take comfort from this process and will be able to best support you knowing that you’ve considered all the options and developed a logical plan.

  • Keep it all in context. Most dairy farmers have made significant inroads into principal repayments over the last 3 – 4 years. Make sure you outline the cash required this year in the context of your overall progress in the last few years.

We know that these major shifts in payout and profitability are massively unsettling. There’s enough out there in farming right now to challenge us without the overlay of making a loss. The most important thing to do is look after yourself, your family and your fellow farmers. Everyone deals with these challenges differently, but make sure you support each other.

If you’re not sure how to cope, or what you can do to manage this situation, reach out for help. Ultimately, we will get through this and out the other side, and we’ll learn a few new skills along the way.

 

We’d love to help. We’re all about better banking outcomes, so if you want to review your business to understand where you might sit, drop us a line today on 0800 692 212, email us directly, or fill out this form and we’ll be in touch.

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Farming The Farmers - Are Banks Using The Productive Sector to Subsidise Housing Loans?

Jul 20, 2023 7:40:56 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

Take a look at the below graph.

The underlying data is sourced from RBNZ, and in particular data that compares the interest income earned by New Zealand banks on residential mortgage loans verse business loans. These values are represented as percentages of the value of their loans.

In other words, this is the average interest rate paid by the average home loan borrower verse a business borrower (which includes Agri).

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Bridging The Gap:  How We Fund The Future

Jul 6, 2023 2:59:20 PM / by Scott Wishart & Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Do you have a farming business who has growth aspirations but you’re not sure how to fund this?

Are you a large farming business looking to exit some or all of your assets but want to leave some of your exiting capital in the sector, in a business and sector you know?

Do you have some capital, but not enough and want to make some bigger leaps in the farming sector?

Maybe you’ve got a farming business but feel that your current capital structure isn’t match fit, suited to your business needs or doesn’t allow you to sleep at night?

Are a wholesale investor and you want to invest directly into a farming operation and enjoy returns from both profit and capital growth?

Or, maybe you’re a wholesale investor and want a fixed return by advancing a loan to a first mortgage backed by land?

Are you interested in short- or medium-term loans with enhanced returns where the risk return equation is compelling?

In our last article we wrote about the key drivers of success including the need for deeper capital markets to support and encourage greater prosperity in New Zealand.   We received lots of feedback on this article which demonstrates just how real these needs are.

(If any of the above examples resonate with you, click on this link and fill out the form and we will be in touch).

So, what is NZAB’s role in meeting these needs?

 

Since we started back in 2017, we’ve been on a mission to help farmers get back in control of their banking.

This means that we work hard to understand their businesses deeply and help them act with confidence so they can focus on what they’re good at, which takes the worry out of the rest.

For the most part, that means working with the farmer and their bank to ensure both sides get what they need.

However, increasingly we are finding more and more need for non-bank funding solutions. This ranges from equity capital to private debt and everything that sits in between.  

 

 As good as New Zealand banks have been at providing debt capital, its simply not enough to cover the entire spectrum of needs of the Agri sector.

The current regulations in the banking sector have prompted banks to simplify their credit criteria and, as a result, limit the level of risk they are willing to undertake. Consequently, when farmers make a lending request, it often feels like trying to fit a square peg into a round hole. This mismatch can lead to fluctuations in credit appetite and a wavering of confidence within the industry, ultimately impacting returns and asset values.

Whilst there is significant capital in New Zealand and around the world the spectrum of currently available funding solutions for New Zealand Agri is actually quite limited. The reality is that our capital markets in Agri are thin and underdeveloped.   

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Stop Cutting Down the Wonderful NZ Tall Poppies

Jun 1, 2023 1:22:40 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

There has been considerable debate recently in the media about the fairness of the current tax system and in particular how the very wealthy in New Zealand should be taxed.   It has led to a quite emotional debate about the “fairness” of the relative contribution of taxation as a percentage of total earnings whether the be realised or unrealised.

As I explored the competing views, it just ended up saddening me. Listening to the debate, the framing of the topic of “fairness” was only in terms of the split of a tax burden – instead of a future based and more aspirational debate on how we might educate and share the fundamental traits of success – which is how wealthy people got to where they are in the first place.

In other words, it was an all-consuming discussion about the division of the outcomes of wealth without any consideration to the building blocks of wealth or success or how those things could be fostered to increase prosperity.    

In this sense, the greatest unfairness today is that only some parts of society are fortunate enough to be ingrained with and/or educated on the traits of business success (and therefore learn and emulate them with wealth often flowing) -  and a fair chunk of the New Zealand population is not.

 

To start this discussion, I want to share my observations of the traits of successfully wealthy people – typically business owners.

After being in the finance sector for almost 25 years I have been privileged to work alongside some very successful people and see first-hand what makes them tick.   My experiences come from seeing first-hand how these people flourish and grow during both economic boom and economic fortitude.  

 (Please note that as a reader you might not find all of these traits “good” given we all have differing values and everyone has a different version of “success”, hence they are observations not endorsements).

  1. They work exceptionally hard.   They are not 9-5 people, five days a week. They work long hours and weekends but don’t even realise they’re working.  They step in when required to get things done, often sacrificing other aspects of life to achieve it.
  2. They focus on what they are good at (in most cases, what they enjoy doing) and they made a business around it.   This is also the reason that they work exceptionally hard. They’re not really interested in working for other people – they have a strong desire to create something themselves.
  3. They put all their eggs in one basket, initially.   This is a financial advisors “no-no” but the reality is that they didn’t get to the position of wealth by “diversifying their investments”.   They backed themselves on one business or one asset class and stuck to what they knew best.  At times, their apparent lack of appreciation of the risk of their single business approach (or conversely their utter belief in what they are doing) can be startling.  This also meant that some of these people failed.   (Note: you will see wealthy people having quite diversified investments but that was typically after they’d created their wealth in one enterprise).
  4. However, they are nearly always “operationally excellent” in their one business – producing a good or service better or cheaper than most of their peers or innovating to produce something different or develop their asset to greater levels of productivity. This allowed them to attract more capital, whether it was bank debt or other investors wanting to participate with them. They didn’t get very wealthy because they simply had a heap of one asset class waiting to go up in value.
  5. Their mindset is neither optimistic nor pessimistic but realistic. They have a great ability to step back from a problem or challenge with a laser sharp focus on understanding the issue and solving it.
  6. They have excellent market and business relationships in their wider sector and really enjoy connecting with other suppliers and producers to learn and share. This nearly always builds deep trust that enables further business down the track.
  7. More likely than not they are not “super intelligent” in the academic sense of the word Instead they have strong intuition and belief in a certain pathway forged on past or observed success. They don’t spend days analysing the upside and downside of a potential investment.   In their minds, many a good idea died in the depths of a spreadsheet.
  8. Because they enjoy what they’re doing and are playing to their strengths, they have long term investment horizons. They don’t chop and change out of a market but stick to something over a long period and enjoy the benefits when others drop out.
  9. They are humble and often talk about their failures first, well before their success.
  10. They look to maximise their access to external capital to support their strong belief in their business and growth strategy.
  11. They have great partners.   Mostly, I mean this to be their husband or their wife but this also includes non-family business partners.   They often have quite different strengths and complement and support each other in business and life.  
  12. They are not motivated by money but are motivated by growth. They don’t set a target around a certain wealth figure they want to achieve – instead the wealth is a by-product of playing to their strengths and doing their business very well.
  13. They surround themselves with great advisors, but still make the decisions themselves and own them deeply.   They don’t seek to blame others when things don’t go as planned.
  14. They seek to control as much of the risk in their business as possible, by owning all the uncertain parts of their supply chain but not necessarily “control freaks” with their people.
  15. They are typically very normal, highly respectful and down to earth people.

So, let’s get back to the topic of fairness in the context of wealth in New Zealand. What I don’t think is fair, is only a small section of New Zealand actually understands these traits. Not enough of New Zealand gets exposure to what really makes and creates business and/or wealth.

And that pool is shrinking further.

 

So how could we rectify this?

Let’s not think that these are just the traits of the super wealthy either- they are also the traits of plenty of smaller local successful businesspeople who put considerable risk and capital on the line to create something a little bit better for themselves, their family and their communities.

 

Firstly, let’s celebrate them better and learn from them.

We need to change the New Zealand ethos so that these people actually feel willing to share what’s made them successful. At the moment and particularly following this tax debate there is little incentive for any of these people to engage in this discussion – instead it has only served to drive anyone who has been remotely successful further from the spotlight.

We need to create a New Zealand wide and eventually ingrained culture of celebrating success.

“Celebration” doesn’t mean that we’re throwing street parades, it means listening to their stories, understanding what drives them, asking them questions and trying to understand more deeply what got them to where they are.  

Let’s feature their stories more prominently in the media on a regular basis or go one step further and set up a TV program via New Zealand on air that charts their growth stories.

From a school perspective, wouldn’t it be neat that the local school was able to hear from a local businessperson on a regular basis so they could listen, get inspired, build connections and eventually emulate those traits if they found it resonated with them.   This could even lead to a nationwide set up of a business mentoring type program where secondary school children can learn from an existing business owner.

 

Government has a role to play – by not being the blockage.

How can New Zealand obtain greater prosperity if we continue to frame the discussion around fairness in the context of distribution of the outputs of wealth- instead of encouraging the wider distribution of the knowledge and drivers of success?    

This doesn’t mean that the taxation system doesn’t need an overhaul; but where are the policies and ethos alongside that create incentives and/or provide education and learning for people to get into enterprise and have a go?

Both NZTE (NZ Trade and Enterprise) and the Icehouse do an excellent job of coaching and connecting businesses with both skill and capital. But they have limited resources – how could we turbocharge these entities to create a much greater suite of new and more successful enterprises in New Zealand?

Ironically, with greater regulations and conditions designed to improve prosperity for the worker, this unintentionally means that larger or more corporate businesses are more likely to thrive, rather than smaller ones, due to burdening regulatory overhead costs and complexity that can only be carried at scale.  

Middle ground needs to be found.

 

We need to deepen our capital markets beyond the main trading banks.

Current access to capital comes largely from the main New Zealand trading banks that are set up mostly to support mortgage lending. The required depth to support growth businesses is simply not available in New Zealand. Therefore, we require more suitable capital via a greater depth of equity capital and investment funds dedicated to this purpose.

I note the government’s earlier commitment in 2022 to establish a $100m growth fund was a good start but it has quietly disappeared off the radar without any execution.  This was to emulate the Australian version that has a $540m fund created by Government and the main trading banks that take minority stakes in businesses to support their growth.   Imagine if NZ went large and put a billion dollars together to turbocharge the process?  

The unsurprising thing about capital investment in any one sector is that it is self-perpetuating as more capital is made available, other participants enter the fray, creating a functioning market where people feel confident to invest.

NZAB has a role to play here as we widen the network and connect with more capital providers that want to get access to investment and funding opportunities in the Agri sector.  And at the same time educate the wider market on the very compelling risk and return that the sector provides for participants with capital.   You’ll see more from us on this topic soon.

 

Drop us a line at any time - whether you want to chat more about your own success, access to capital or maybe you’ve also got your own pillars of success to share. Please feel free to reach out on 0800 692 212 or info@nzab.co.nz

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Don’t Get Sucked Into a “One Year Mindset”

May 9, 2023 4:43:17 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

Last week we penned an article about how hard budgeting will be this year given the falling milk price, costs remaining stubbornly high and lots of macro forces that could pull both factors either up or down over the next 12 months.

Within that, one of our key points is that farm operating margins in any one year are very rarely “average”, they always shift from being great to being very poor.   We went further and said that looking at those operating margins over a longer period of time (3-5 years) is critical when dealing with your own mindset and also that of your bank.

Reflexive decisions due to apparent near-term financial stress felt by farmers and/or their capital providers can have a detrimental impact on farmers mindsets.   They can impact their confidence in their own well established and proven operating systems and their confidence to invest in productivity.     Both farmers and banks know that margins can swing and things average out over a longer period, but sometimes it’s a good idea to put this topic up in lights and support with actual data to ensure stability with mid-term strategy.  

With that in mind, this article summarises some actual dairy farm margin data over both the last two years and then against the last 20+ years to support that point.

First up below is a bar representation of the last two years of average financial performance plus FY 24 forecasted and then all three years averaged in the final column.  

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Budgeting For FY 24 is a Bit Like “No Man’s Land”

May 2, 2023 2:41:54 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

With our clients we’re always in a continuous budget setting and forecasting mode so we can try and stay well ahead of what might happen and what impact it might have on key decisions. This can include debt repayment, capex projects, expansion feasibility and working capital facility management.

It would be fair to say that the last six months have been very difficult with significant downwardly revised income projections and costs still remaining sticky (and even increasing) on the back of inflation spiraling.

Going into FY 24, this is not going to get easier with a wide range of milk payout, meat and crop price expectations in the marketplace and rapidly changing macro events that may or may not flow through to on-farm input and capital costs.

With that intro out of the way, the following are some key thoughts as we move through the budgeting phase for FY 24.

 

First, what milk payout should we use?

First of all, some data. Below is Fonterra payout, since 2010 with dividend on top. The yellow line is the five-year average, and the dark line is the ten year average.

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The 2023 Dairy season. Where's the cash??

Feb 14, 2023 4:17:36 PM / by Scott Wishart posted in Debt, Action, Planning, Budget, Banking, Strategy

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Last year we introduced our new analytics platform with some early insights as to what was going on with cost inflation in the dairy sector. That was really exciting for us and our clients as it provided real time information that could be used to understand what was going on and what was likely to happen next. It also proved useful for the banking sector and we had many positive and constructive meetings with banking teams where we collectively worked through understanding the information and planning to support our mutual clients.

After a good break over Christmas, one trend is now undeniable. Cash is disappearing. If you haven't yet revised your cashflow this season or found that your plans for tax, principal and business investment have had to change then you are certainly in the minority!

So, what's going on out there? The following charts are what we are seeing as things change on a monthly basis. 

 

Production is down on forecast:

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The Inflation and Interest Rate Clusterf…

Jan 30, 2023 9:51:01 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

 

That headline might get a few replies to my inbox. To add fuel to the fire, I need to be clear that I’m not an economist.

However, with the unprecedented volatility we’re seeing with both inflation and the resultant interest rates hikes designed to kill it, understanding the mechanics of inflation is critically important to establishing an informed (and not emotional) view on where interest rates might go.

In this article, I want to talk about how inflation is measured and the indicators that are used.   Plus, I want to discuss some of the flaws in the current approach which may lead into some of the unintended impacts that are going to be with us for years to come.

 

Why is this important?

It seems that both current inflation levels and the central bank response to it is like a large rubber band at present. The further it gets stretched away from the middle, the bigger the impact when it lets go. We’ve seen the impact of the far too loose monetary policy to date.

Are we set to see the pendulum swing too far again, but this time the other way?

 

Ok, first lets school up on inflation.  

Inflation, broadly occurs when demand for goods and services in the economy outpaces supply.  

Without going into detail, we all know that too much of it is a bad thing.   It’s colloquially called “the thief in your pocket”.

Get it right and it means households and business can have normal stable activity Get it wrong and it can lead to all sorts of market distortions and erratic behaviour for both business and consumers.  

Ultimately, a very high inflation rate puts a dent in the trust that people have in money – if people think it’s not going to be worth a similar amount in the future it starts to lose its “trust”.

Noone wants that to happen.

 

How is it calculated?

Inflation is calculated by examining a “basket” of goods and services and how they change in price over time. This might be food, petrol, rent or consumer electronics. This data is collected by Stats NZ and presented as a CPI index. At the moment, its running at 7.2% well above the mandated band of the RBNZ of 1-3%.

 

Issue one: CPI is measured over a 90-day period (quarterly) and looks backwards.  

We’ve just been informed by Stats NZ in late January, that CPI for the quarter ending December 2022 was 7.2%. That’s all of the spending change in October, November and December last year.

In October last year households were paying an average of only 4.07% on their home lending (due to still having fixed rates in place – see more on this below). Household savings were still semi-high and Adrian Orr hadn’t delivered his November monetary statement reprimanding public spending and talking of significant further increases in rates.  

In other words, people hadn’t changed much at this point.

In other countries such as the US, CPI is measured monthly - we think adopting this system would be a very good start.

 

Issue two: CPI doesn’t record change of volume of spend - only a change in price.

What’s really interesting about the calculation methodology is that it measures the changes in price of particular goods or services, but it doesn’t measure the change in volume of how many or how much we’re purchasing them for.   They are weighted, but that weighting only changes every few years.

For example, if food prices (which make up ~19% of the index) go up for the year by 10% but we all collectively spend 10% less because we can’t afford as much (meaning purchasing volume goes down), this registers as a 10% increase in inflation (for that category) even though we may have spent the entire amount.

Now economic theory solves for this – i.e if we are all start buying less of something that costs more, that, “in theory”, with all else held equal, might lead to a build-up of stock of that item which would then mean that prices would go down to bring supply and demand back into equilibrium *

But that takes time to work through- again, “a lag”.

(* this statement is not entirely correct when it comes to food at present – as inventory itself won’t build if the actual supply has reduced – which is currently the case with food due to Covid issues and geo-political supply line disruption)

 

Issue three - fixed rates - average interest rates on home loans are still low (but rising fast).

About 50% of all fixed rate loans will come off this year.

At the moment (as of Nov 2022), the average rate being paid given a mix of historical fixed rates, is still only 4.07%.   We estimate it is probably about 4.50% by the end of January – but that is still a mile away from the current short term re-fix rate of 6.50%. In short, the pain and impact on spending in the economy is still coming and set to intensify.

Given the high use of fixed rates by New Zealand homeowners, albeit quite short in length (1-3 years), you could effectively put up the OCR to 10% and it wouldn’t make much difference to how much a homeowner is paying on interest right now.

This comment is an extreme example, as it would definitely have the impact of scaring the population into spending less due to fear of the future – but the point is that it takes time for the increase in OCR to work its way into actual spending habits. You must be patient to see its effects as it flows through the fixed curve.

However, the impact is happening much quicker in farming and in business where loans are typically more likely to be floating commercial type products and they see the rises everywhere, the 30 or 90 day bill goes up. They are feeling it sooner.

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Latest Edition: The NZAB Agri Bank Dashboard - December 2022

Dec 14, 2022 3:19:57 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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With the RBNZ recently sharing updated bank metrics for the period ending 30 September 2022, its time for us to dive back in and see what movements are afoot.

Welcome to the latest edition of our NZAB Bank Dashboard.

For the first time in a long time we're starting to see some slowing in all sector credit growth with the September quarter being the slowest growth in new lending since the June 2020 quarter. 

Whilst the growth has slowed; it was nevertheless up with $3.5bn up for the quarter and $23bn for the year.  Very interestingly, ANZ, the largest lender in NZ, recorded none of that growth in part due to much less home lending and their agri book retrenching almost 5% for the year.  Overall agri loan growth is largely neutral with ongoing dairy repayments outweighing some strong growth in Horticulture (nearly 16% up year on year).

Whilst ANZ agri market share continues to slide unabated, at 1% per year, ASB also lost ground, shedding almost 60bps of market share for the year ended September.  

On the flipside, BNZ gained what ASB has lost- gaining 0.58% market share and Rabo gained what ANZ lost- at 0.98%.   These are quite big movements indeed and are likely to drive a lot of activity at market level as all banks continue to compete for new business in the sector.     

 

As always, if you have any questions, please contact us directly.

 

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