Fully stocked bank account lifeline for struggling graziers
DROUGHT-affected Central Queensland graziers could be thrown a lifeline worth hundreds of thousands of dollars before the heavens even open up.
In a hoof-in-the-pen move, cattle and sheep producers are being given the opportunity to go nuts at the sale yards and shop for stock while cashed up with another company's money.
Not quite a traditional bank loan system, StockCo offers established graziers a fully stocked account to invest in a herd and reimburse the money only when the stock has proven profitable.
It is a new concept to Australian primary producers and means graziers can go from crippling drought, into a wet season and onto the sales without dipping into their own cash flow.
Elders district banking manager Linda Paterson said the program had the potential to help drought-affected graziers over the threshold and back into profitability when the heavens finally opened up and grass began to grow.
"Essentially the producer buys the cattle on behalf of StockCo and grow them, manage them and do all the husbandry on the farm and when they are sold StockCo deduct the stake, the original purchase price and the interest out of it and the producer gets the profit margin out of it basically," Ms Paterson said.
"If you looked at in isolation and said what are the costs, you would think they are quite high.
"But if you look at it as an income that is going into a balance sheet that you wouldn't have had, without having to outlay any money and with working capital intact, just as I would buy a normal batch of trade cattle using my overdraft or my own money, StockCo would provide funding and then you get the profit margin at the end."
The facility supports an increased demand in rural business lending after CommSec figures released this month suggest a six-year high in rural business lending over the past year was attributed to renewed interest in the sector from overseas investors and expectations of stronger Asian demand.
Over the past year to January, total business lending was $5.316 billion, up 7.4% on the previous year, with Queenslanders the second highest business investors in the country.
Ms Paterson said she encouraged graziers to do their research early and have the program set up before the drought broke.
"The process is quite quick but if you think you can come in on Monday and go to the cattle sale on Thursday, it's not that quick," she said.
"What we'd suggest is do your research into the product, it can sit there for 12 months until the good summer rains come next year and it doesn't cost you anything. If you get under some of that rain and you've got surplus grass you can just buy a draft of preg-tested in calf heifers and cows and grow your numbers.
"My suggestion is to have this product set up now before it rains so that you know you have a limit of say $100,000 you can go and buy a draft of steers or heifers and build your herd from there, so get an income and then go out and build your herd from there.
"Say for example you had a great summer, had a lot of rain and have a lot of grass and you decide you want to go out and buy some young steer at the sale but think the overdraft is a bit tight so you'd use StockCo, they'd buy the capital on your behalf, the money would go through a separate Elders account and when you grow them out there is an agreed term, it's either three, six or nine months, you agree to sell them (at the decided term), you agree to a set interest rate and finance cost and once they're sold StockCo track the identification numbers and know their sold and the loan is essentially repaid and you get the profit."
Rainy day loans not spent yet
WHILE graziers have the opportunity to tuck a few hundred thousand dollars away for a rainy day, that day is yet to present itself.
That was according to ANZ head of regional business banking James MacPherson who said framers' need for finance to support restocking had not yet arisen particularly in Central Queensland.
Mr MacPherson said rural business lending had been depressed in recent years as re-stockers and traders were not as active in the market due to widespread drought conditions.
"Confidence in some communities, especially the Central West and North West Queensland will have been impacted by the ongoing drought and destocked properties," he said.
"There have been cases of graziers buying grass in order to expand holdings and preserve their herds. This has been the case in central Queensland in particular."
He said strong demand for Australian beef had attracted interest from investors around the globe along with Australia's domestic corporate funding.
"The benefit from this is that it creates an avenue for sale for some farmers, which adds depth to the market as more people compete for limited resources," he said.
"The significant rise recently in beef prices has also boosted confidence levels in the sector."
Rural businesses typically borrow to allow expansion in
purchase of new property
purchase of additional stock c
apital improvements such as fences and water infrastructure
equipment that is essential for the farm's operation and fund capital when there are natural disasters