As 2024 draws to a close, we’re reflecting on the year that was in agricultural debt and how our predictions stacked up. With optimism building for 2025, we remain “long” on agriculture.
Here’s a quick snapshot of how we fared with our 2024 forecasts:
1. Debt is just more expensive:
✓ Spot on. Unfortunately, borrowers 
faced the reality of interest rates being higher for longer. Rates cuts have been wound back and delayed. At the start of the year the RBA was forecasting a rate cut ‘Christmas present’ for borrowers. They now talking about Christmas in July to celebrate the first rate cut since November 2023.
We are not surprised given the structural issues continuing to drive inflation. And don’t be surprised if rate cuts keep getting delayed.
2. Flat to inverted yield curve:
✓ We got this right. Long-term interest rates offered value for borrowers looking to fix, particularly as the yield curve inversion deepened during the year.
At the start of the year markets were forecasting a slight increase in rates before dropping after 12 months and staying below the cash rate for 10 years. Growing concern around economic weakness climaxed in September and the yield curve fell away. Fixing opportunities abounded, even for longer tenors.
The situation was short-lived, as markets realised inflation wasn’t going anywhere. The yield curve responded by flattening out. Now discussions with borrowers are focused on shorter term fixes as an inflation hedge.
3. The risk pendulum has swung:
~ Partly right. Lenders continued to have a risk off mentality, making it harder and more expensive to borrow in 2024. We did not anticipate how much it would vary by location, commodity and risk profile. There was plenty of competition for financially strong borrowers. Other borrowers found it harder to access debt. Some were even nudged by their bank to find a new lender, despite being long-term customers and still paying interest.
4. Turnaround times to remain slow:
✓ On point. Bank approvals remained sluggish and slow turnaround times continue to be a major bugbear of borrowers. Things now just take more time. Loan applications require more supporting information and borrowers regularly get asked multiple times for further information.
5. Meeting the bank serviceability buffer is harder:
✓ Correct. The banks continued their attention on loan serviceability. Borrowers with strong asset bases but tight cash flows struggled to meet stricter serviceability buffers. Loan assessments were often hindered by short-term views on commodity prices and seasonal conditions.
6. The compliance burden continues to grow:
✓ Accurate. Compliance remains king. Red and green tape are now firmly ingrained in agricultural debt. Borrowers must deal with the burden, with little feedback or value added for their efforts.
What’s in store for 2025?
Agricultural debt grew by 6% in 2023-24 (RBA), even amid a slow rural property market and economic volatility. We anticipated stronger activity in 2025 as more borrowers re-enter the market after some time on the sidelines.
We’ll be back early next year with our full predictions for 2025. Just need to get through the Christmas ham and have time to consult our crystal ball.
Until then, Happy Christmas and thanks from the Foundation team for your ongoing support and encouragement. Here’s to an exciting year ahead!
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