DAIRY farmers recovering from last year’s crippling slump have been cautioned about getting into big debt again.
With good seasonal conditions and better prices from processing companies, most south-west farmers are optimistic about turning their balance sheets from red to black.
However, long-time rural counsellor Vince Thorne is warning them to tread carefully when taking out new loans, especially easy hire-purchase arrangements.
“In dairying things can turn quickly and you can get into large debt very easily,” he said.
“Things are looking good for farmers to trade through, but there are some predictions payments next season could be lower.
“I’m still seeing farmers borrow for a new tractor, ute and four-wheeler on low-interest hire-purchase loans.
“People need to reason out is it a luxury or a necessity and ask for advice.”
In the previous two years low milk price payments, harsh seasons and high feed bills tipped some farm operators over the wall with debts reputedly of more than a million dollars including large interest commitments.
Mr Thorne said banks had softened their policy from the harsh takeovers of the 1990s and now preferred to allow farmers to sell out under agreed terms rather than forcing them off with little warning.
“I haven’t got a single case where banks have taken possession of a farm — rather it is the operator who has declared insolvency or liquidation,” he said.
“In past tough times there would have been dozens of forced sales and about 150 farms changing hands.
“But in the past 12 months there wouldn’t have been 10 in my region.”
Industry figures show that a typical 300-cow herd producing between 1.8 million to two million litres a year should generate more than a million dollars a year.
Mr Thorne said the cost ratio would vary from 10 per cent to 80 per cent of income.
“It depends on what the interest bill is,” Mr Thorne said.
“Some farms could have feed bills of $200,000 plus up to $80,000 for fertiliser.
“Then there could be repayments of $50,000 to $60,000 for the tractor, ute and four-wheeler vehicles.
“Power bills have more than doubled or tripled in the past five years and can cost $5000 a month for a 300-cow herd.
“Farmers in trouble should seek advice and try to work a way through with their bank rather than avoiding the issue.”