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While macro pressures are building, brokers and lenders said credit demand and economic fundamentals remain broadly intact. However, cost pressures, particularly around diesel and fertiliser, are beginning to reshape both borrower behaviour and lender sentiment.
According to Commonwealth Bank of Australia, fuel remains the most immediate constraint, with diesel accounting for more than 80 per cent of agricultural energy use nationally.
Fertiliser, meanwhile, is emerging as a significant medium-term risk, particularly for cropping operations exposed to global supply disruptions.
CBA noted that about 30 per cent of global urea flows through the Strait of Hormuz, making nitrogen supply a critical watch point for cropping businesses later in the season.
Nonetheless, data from mid-March underscores the sector’s underlying strength.
According to the Department of Agriculture, Fisheries and Forestry, lending to agriculture rose 5 per cent in real terms to $142.5 billion over the past year, with growth recorded across most states.
Managing risk and opportunity
For Luke Radford, director of Queensland brokerage Homestead Agribusiness, the current environment is defined by uneven seasonal conditions and rising input costs but also opportunity.
“Obviously it’s been a bit of a shock to the system too front,” Radford said.
“I think the interest rate risk side of things is still very manageable where we’re at – honestly, the main issue is being able to get fuel. A lot of clients I’m talking to are paying $3, $4 a litre – but they’re more concerned about getting access to it.”
Radford said that while input costs were posing real risks to agribusiness cash flow, it would be the combination of these pressures with adverse weather that would pose a more serious threat.
“If we have adverse weather events, also compounded with limited ability to get access to inputs, that’s where it won’t matter how good of an operator you are, you’re going to be stuck,” Radford said.
While parts of Western Queensland are experiencing some of their strongest seasons in years, other regions remain under pressure, with some farmers opting not to plant at all.
“Some of our Western Queensland guys are probably having some of the best seasons that they’ve had… but everywhere south of there is extremely dry,” Radford said.
Despite this, property values and commodity prices are supporting the sector, reinforcing what Radford described as a high-risk, high-reward environment.
From a lending perspective, brokers are increasingly focused on proactive cash flow management and risk mitigation.
“A lot of my clients are trying to get a head on their cash flows and make sure they know where they’re sitting. We can’t control much, so it’s just about being smart about capital,” Radford said.
This is also driving more strategic decision making around capital deployment.
“A few of our guys are just putting development on hold… and being more strategic around where they spend their money,” Radford said.
At the same time, higher commodity prices are providing a potential upside.
“But on the other side of the coin, commodity prices are going up, so if you pull it off, you could end up even better,” Radford said.
“When there’s hardship, there is always opportunity… you’ve just got to be really clear as to what that opportunity means, cash flow wise.”
Lenders cautious, but fundamentals intact
From the lender side, early indicators suggest credit demand remains stable, although a shift in bank appetite may be emerging.
A spokesperson for Thera Ag Finance said: “We haven’t seen anything that would suggest there’s an impact on credit demand.
“I wouldn’t be surprised if we see major banks tap the brakes a bit on ag… particularly for new-to-bank clients.
“From that, we’ve seen a fairly large uptick in inquiries from February, but that has a bit more to do with just the banks being a little more reluctant about ag finance generally.”
Thera Ag Finance said there had been no significant movement towards liquidity stress nor any material deterioration in sector profitability.
“There’s been nobody running for liquidity solutions, and I don’t expect that to be an issue for the next six months or so,” it said.
“The silver lining is that agriculture remains a fundamental sector, so there’ll always be a need for production. That doesn’t mean beer and skittles every day, of course, but generally the fundamentals of most agricultural sectors remain pretty good.”
Structural pressures and long-term outlook
While the sector remains fundamentally sound, both brokers and lenders acknowledge that current pressures are unlikely to ease quickly.
“I think the shadows will be longer than perhaps what many anticipate,” Thera Ag Finance said.
“It’s just a complex issue that’s just not going to get fixed overnight.”
Radford said he was yet to see evidence of the support flagged by the federal government but hopes the current fuel challenges will prompt a reassessment of domestic capacity.
“I guess you’re never going to see any real structural change in this country unless you have significant pain to cause it,” he said.
“I hope this will help the government to go back and have a look at some of the decisions we’ve made.”
[Related: Regional sectors hit hardest by fuel shock, NAB CEO warns]
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