Finance with Don Fraser Fraser Farm Finance

Everything is changing so fast it is frightening. More people, more demand on goods and services, more pressure, more stress and more mental health issues. We’ve been a sleepy hollow for decades – plenty of space, plenty of food, not too much pressure – but that has gone forever.

The growth largely fuelled by immigration is a bit like a ponzi scheme. More people, so we need more houses for them – and, now we need another 20,000 builders and the beat goes on.

But, I really set out to talk about how the financial outlook is changing. I’m a crusty old rural banker who studied economics to a moderate level. We’ve been up and down about five times in my business lifetime – that’s about every 10 years. We are nearing the end of a very long ‘bull run’.  Property prices have increased, share markets are up, lots of people are borrowed to the hilt, and interest rates being low have also fuelled speculative borrowing. Our personal debt as a nation is frightening.

John Key, the ultimate trader, saw the writing on the wall and got out of politics while he was ahead.  He’s cautioning us to be careful as there are some “clouds on the horizon”.  We’re seeing private lenders offering high interest rates to attract funds to lend at even higher rates. Remember when Provincial Finance and all those other lenders failed? That’s not that long ago either.

Some of the bigger economies are borrowed up to the hilt too. China has some headwinds ahead.  The United States is fully debted, offering tax cuts with no additional income to replace it.  Then there’s Brexit, trade wars, change of guard around the world and it could get very grumpy. The share market could fall rapidly setting off a major correction. You can go online and see the ‘wise’ suggesting the ‘bull run’ is over and it is time to tidy-up our portfolios. The banks seem to be pulling back with their lending and it appears there are a lot of people out there with too much debt. I recently saw a budget for a 900-cow dairy farm including a lot of debt servicing returning the owners a paltry $20,000. All of that effort and risk for $20K. It does not stack up.

On the positive of all this, NZ is in a strong position to avoid being blown over. We have modest debt, we export food and can feed ourselves reasonably well. If it gets tough and the tourists all stay home NZ will see very quickly how they are dependent on farming. We are, however, an exporting nation and very dependent on the world wanting our product.

So, what can we do to strengthen our positions? Cut back on non-essential expenditure and build some cash reserves into your business. Take a realistic view of your business and seek help if you feel you may be at risk. Life and farming is a risky business, it is just how you see and manage those risks that matters.

So times are a changing.  We’re nearing the end of a long “bull run” and the “wise” are telling us to heed their warnings. The world is at full stretch. We’re fortunate to live in NZ where we’ll weather the storm better than most countries. But please, shore up your own balance sheet and be aware.

Disclaimer: These are the opinions of Don Fraser of Fraser Farm Finance.  Any decisions made should not be based on this article alone and appropriate professional assistance should be sought. Don Fraser is principal of Fraser Farm Finance and a consultant to the Farming Industry. Contact him on 021 777 675. A disclosure statement is available on request.