Rural debt soars: Australian farmers owe $135 billion

Farm debt has hit $135 billion in the wake of soaring commodity prices and land values. But the borrowing boom may be over.

Farm debt may have reached $135 billion, but their appetite to borrow more has eased, as cattle and other commodity prices soften.

Australian rural debt has jumped 46 per cent in just three years, from $94bn at the end of 2021 to $135bn by Dec 31 last year, based on the RBA’s latest data.

The surge in borrowings has come on the back of good seasons, low interest rates and soaring commodity prices, with much of the money going into buying more land and machinery.

ABARES’ broadacre land values lifted 55 per cent in the three years to 2022.

But the tide has turned, with Rabobank senior analyst Michael Harvey saying “it’s challenging right now, as commodity prices come down, interest rates are higher and seasonal conditions less favourable”.

Rural land values have already plateaued or fallen.

Rupanyup grain grower Andrew Weidemann said “there’s a lot of money to be paid out in interest, for farmers who’ve taken the step of buying more land.

“Everyone has been thinking for a while: ‘How do you make money out of it (land) at the value it’s at?’.”

Gre Gre farmer and accountant Peter Knights said maintaining profit margin was the biggest issue.

“Throughout (agricultural) industries there’s been an increase in costs, but not margins, especially in sheep,” Mr Knights said. “As budgets are prepared, there’s a higher percentage of cash shortfalls.”

Mr Weidemann said farmers were also thinking twice about buying new machinery, the cost of which had risen by 40 per cent since 2020.

“That’s an extra half a million on a new header,” Mr Weidemann said. “Interest rates would have to halve from where they are now to reignite the market.”

Tractor and Machinery Association executive director Gary Northover said the heady days of selling 20,000 tractors a year in 2021 and 2022, when an instant asset write-off worth up to $150,000 was available, were over.

He said sales fell back to about 13,000 last year and have softened further this year.

In his March sales report Mr Northover stated the “large 200hp (150kw) plus (tractor) range continues to struggle, down another 8 per cent this month to be 28 per cent behind for the year so far”.

“Victoria did it tough (in March) off the back of dry parts of the state,” he stated, with across the board tractor sales down 9 per cent for the month, to remain at 12 per cent below the same time last year.

“New South Wales enjoyed its first rise in sometime up 5 per cent for the month but remains 6 per cent behind on a year-to-date basis.”