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Is Agricultural Sector lending effectively unsecured?

Schuhart

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http://www.centralbank.ie/polstats/stats/cmab/Documents/2015q1_Trends_Business_Credit_and_Deposits.pdf

There's about €3.5 billion worth of agriculture-related lending out there.

In some distance past time, that might have seemed a safe bet.

But there seems to be huge problems, when a farmer defaults, in actually enforcing the debt and (if necessary) repossessing the assets that, on paper, might cover the amount owing.

Does this mean that agriculture-related lending is effectively unsecured lending (like credit card debt), and needs to be priced accordingly?
 


Roberto Jordan

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http://www.centralbank.ie/polstats/stats/cmab/Documents/2015q1_Trends_Business_Credit_and_Deposits.pdf

There's about €3.5 billion worth of agriculture-related lending out there.

In some distance past time, that might have seemed a safe bet.

But there seems to be huge problems, when a farmer defaults, in actually enforcing the debt and (if necessary) repossessing the assets that, on paper, might cover the amount owing.

Does this mean that agriculture-related lending is effectively unsecured lending (like credit card debt), and needs to be priced accordingly?
Not unsecured but not secured with liquid readily possessed assets- just like mortgage lending for private residences.

Rather than pricing accordingly in terms of yield I would suggest the limitation should be on amount lent.

Quite obviously if farms are not operated like regular private enterprises and owners are less willing to countenance liquidation then there should be a lower bar in maximum leverage available.

What I would add is that if such limitations fall short of what is needed to sustain a competitive industry overall that government needs to work with all parts of teh supply chain to assess how best to address
 

Mad as Fish

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Not sure which part of the link you refer to but overall when it comes to farming the words of Mark Twain are worth bearing in mind -"Buy land, they're not making it anymore". And if that land is fertile and productive then it will always hold a value which is often way above what it actually yields as an investment.
 

Hans Von Horn

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http://www.centralbank.ie/polstats/stats/cmab/Documents/2015q1_Trends_Business_Credit_and_Deposits.pdf

There's about €3.5 billion worth of agriculture-related lending out there.

In some distance past time, that might have seemed a safe bet.

But there seems to be huge problems, when a farmer defaults, in actually enforcing the debt and (if necessary) repossessing the assets that, on paper, might cover the amount owing.

Does this mean that agriculture-related lending is effectively unsecured lending (like credit card debt), and needs to be priced accordingly?

There is this curious expectation in Farming that if the business fails that the bank should not get it's money back.
 

Sister Mercedes

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Agricultural land in Ireland is the dearest in the world, over €10k an acre.

Imagine how much it would fall if Brexit leads to a break-up of the EU and the end of the CAP.

The average price paid across the whole country for farmland in 2015 was €10,336 per acre – a decrease of only 1.8% from an average price of €10,526 per acre for sales in 2014
Irish farming land is tops in global price ranking - Independent.ie
 

Mad as Fish

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Agricultural land in Ireland is the dearest in the world, over €10k an acre.

Imagine how much it would fall if Brexit leads to a break-up of the EU and the end of the CAP.



Irish farming land is tops in global price ranking - Independent.ie
I think this lad probably got it about right -

Economist Jim Power told the Farming Independent that the main reason for high farm land prices in Ireland is down to the low turnover of land in the country.

"There is a very limited supply of land in Ireland and an incredibly low turnover of land, which in turn creates a demand that in turn affects the price of land," he said.


Buying land has very little to do with immediate return on the investment but everything to do with ambition for the family and personal status. Looking long term high land prices can make sense, in 20 years time the loan would have been paid off, the asset will have only increased in value and any money you make off it you keep.
 

irish_bob

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Not sure which part of the link you refer to but overall when it comes to farming the words of Mark Twain are worth bearing in mind -"Buy land, they're not making it anymore". And if that land is fertile and productive then it will always hold a value which is often way above what it actually yields as an investment.
farm land is set to fall pretty hard in the coming years , only dairy farming is profitable and even it is not profitable right now , subsidies at current levels are unsustainable
 

Mad as Fish

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farm land is set to fall pretty hard in the coming years , only dairy farming is profitable and even it is not profitable right now , subsidies at current levels are unsustainable
I've heard that many a time over the years, but somehow it never quite happens. It must remembered that it is the subsidies that indirectly keep the likes of Monsanto so profitable, and they have a far bigger clout than any old farmer with his arse hanging out.
 

im axeled

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look at the price of cattle and calves, most of our calves end up in europe, at most marts one can see the big three and four tiered trucks, awaitng the latest version of the wild geese
 

im axeled

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farm land is set to fall pretty hard in the coming years , only dairy farming is profitable and even it is not profitable right now , subsidies at current levels are unsustainable
dairy farming is no longer profitable, mikl at 20c per gallon, this does not cover the production costs, the co-ops




the co-ops and the minister has walked the farmers into burtons, telling them about how much milk the world market required, how china alone would take all of irelands output, a co-op built a massive powder plant, is it about to become a shiny white elephant, dairy gold got in a guy with a filleting knife, who sold off the family silver, before he could do much more they sacked him breaking his contract, he promptly took the down the legal route, they contested the unconsestable and lost, as in badly, now all they have is a pension guilletoine hanging over them, they are now squeesing the farmers as regards shares, another something which will end badly, kerry on the other hand gave each farmer a quota which they would take from them, the opposition were howling with laughter, the laugh is now on the other side of their puss's
 

good dog

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look at the price of cattle and calves, most of our calves end up in europe, at most marts one can see the big three and four tiered trucks, awaitng the latest version of the wild geese
Very few cattle go for live export, this year to date about 40,000 cattle were exported alive. In the same period 446,000 cattle were slaughtered here.
 

good dog

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In 2015 the price if barley was the same as the price of barley in 1973. In 1973 one tonne of barley would buy 3 tonnes of fertiliser. In 2015 three tonne of barley would buy 1 tonne of fertiliser.
 

Therightroad

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It's a bit like Farmers children all getting Student grants no matter how much land their parents own .... Student fees and repaying loans is only for law abiding tax payers(fools)!!
 

Schuhart

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Not sure which part of the link you refer to
Table A.14 Credit Advanced to Irish Resident Private-Sector Enterprises
but overall when it comes to farming the words of Mark Twain are worth bearing in mind -"Buy land, they're not making it anymore". And if that land is fertile and productive then it will always hold a value which is often way above what it actually yields as an investment.
But if bought with credit (or mortgaged), then that financial commitment has to be serviced from whatever the land yields as an investment.

The only solution I see is a collapse in land values, so they bear a relationship to the value of what's produced. But that seems to require banks to realise that, every time they see a farmer looking for credit, they're effectively handing out an unsecured loan.
 

Mad as Fish

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Table A.14 Credit Advanced to Irish Resident Private-Sector EnterprisesBut if bought with credit (or mortgaged), then that financial commitment has to be serviced from whatever the land yields as an investment.

The only solution I see is a collapse in land values, so they bear a relationship to the value of what's produced. But that seems to require banks to realise that, every time they see a farmer looking for credit, they're effectively handing out an unsecured loan.
In economic theory yes, but we are talking about a business where, long term, there is unlikely to be any depreciation in the purchased asset. There are also such factors as parcel size, absorbing an extra half dozen acres in the balance sheet is a lot less painful than starting a whole new enterprise on 100 acres. There are cost savings to be had as well, spreading the cost of machinery over extra land for instance and greater purchasing power. It's not a simple calculation and that's before we even consider the more personal factors that motivate farmers such as it being a way of life rather than a job and the desire to pass on a larger farm than they inherited. Land prices may look unjustifiable today but fast forward 20 years and things will appear quite different.
 

bokuden

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I started a thread months ago on how Coveney and this government betrayed the farmers by encouraging them to invest wholeslae because deregulation of the milk market would be a great thing. What we got as a farming equivalent of the celtic tiger property boom: Farmers went in hock to the banks under the co-ercion of the governmnet and now the banks have them by the nuts. The right wing pro fg muppets on this site attcked me for highlighting this, of course.
 

Schuhart

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In economic theory yes, but we are talking about a business where, long term, there is unlikely to be any depreciation in the purchased asset.
In fairness, no, I'm not talking theory. I'm just pointing to the practical fact that a 20 year loan (or whatever period) has to be repaid with real money generated over the 20 year period; otherwise, the borrower will be in default.

I'm not commenting at all on the quasi-metaphysical argument that the "value" of the land over that period exceeds the value of the flow of income that it generates. That actually has nothing to do with the practical point I'm making.
I started a thread months ago on how Coveney and this government betrayed the farmers by encouraging them to invest wholeslae because deregulation of the milk market would be a great thing.
Is it fair to say, this reflects a political reluctance to engage with realities in Irish farming.
 

Trainwreck

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Not unsecured but not secured with liquid readily possessed assets- just like mortgage lending for private residences.
Not secured at all.

A farmer go into liquidation?

Yeah, right.


The OP is correct their observations. Agricultural lending represents another farm subsidy.
 

SeanieFitz

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I started a thread months ago on how Coveney and this government betrayed the farmers by encouraging them to invest wholeslae because deregulation of the milk market would be a great thing. What we got as a farming equivalent of the celtic tiger property boom: Farmers went in hock to the banks under the co-ercion of the governmnet and now the banks have them by the nuts. The right wing pro fg muppets on this site attcked me for highlighting this, of course.
I agree

In the years leading up to the abolition of milk quota's farmer's were being advised by all and sundry to expand, Teagasc, politicians, EU ministers were pushing farmers to produce more. It was all about increasing the national herd, increase production.

And where are we now, Fathead Phil telling farmers to reduce milk production

Voluntary milk supply reduction scheme comes into effect

Farmers concerned about EU milk production cuts - RTÉ News
 

Roberto Jordan

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I started a thread months ago on how Coveney and this government betrayed the farmers by encouraging them to invest wholeslae because deregulation of the milk market would be a great thing. What we got as a farming equivalent of the celtic tiger property boom: Farmers went in hock to the banks under the co-ercion of the governmnet and now the banks have them by the nuts. The right wing pro fg muppets on this site attcked me for highlighting this, of course.

I dont disagree that they went nuts and worked counter intuitively in terms of expected market changes with increasing supply. However 2 points:
1) Longer term increased capacity may yet yield increase return through new channels ...MAYBE
2) I would strongly argue against any analysis of Agri in general that views farmers, the IFA, the Dept of Ag and , of all parties, Fine Gael as seperate , independent entities. They are all the same people with the same views acting in consensus. There is even less argument for "stupidity forgiveness" here than there is in the case of 40 k p.a. clerical workers who borrowed 400k mortgages.
 

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