By Federated Farmers

Copyright farmersweekly

Reading Time: 3 minutes

Farmers enjoying stronger returns this year are being urged to strike while the iron is hot and talk to their bank about securing a better deal.

“The rural banking landscape has shifted markedly in the past 12 months,” says Scott Wishart, a director of agricultural loan broker NZAB.

“Stronger returns across dairy and red meat, rising land values, and a lift in Fonterra’s share price have all improved the way banks assess risk in the sector.

“There’s a good chance your overall risk profile looks better to the bank today.

“That makes it a great time to re-engage with your lender and work out what those improvements mean for you.”

Speaking on the Federated Farmers Podcast, Wishart said farmers shouldn’t sit back and expect regulatory or political change to improve their banking outcomes.

“Don’t wait for Wellington. The point is to focus on the things you can control, not the things you can’t,” he says.

“The biggest changes always come when farmers take ownership of the process.”

That means presenting your business in a way that makes sense to the bank – acknowledging risks, showing how they’re managed, and clearly linking borrowing to strategy.

The recent parliamentary inquiry into banking was a useful step, but real progress requires farmers, banks and regulators all to evolve, Wishart argues.

For farmers, that evolution means shifting from a production mindset to a business mindset.

“You’ll always hear about someone across the fence getting sharper rates or securing opportunities others miss,” he says.

“Usually, that’s because they understand their business the same way the bank does.”

Rather than simply hoping the season goes well, farmers need to show they know where the risks lie and how they’ll respond if things turn.

Wishart talks about farmers needing to be “bank ready” – knowing the answers before the bank asks the questions.

“It’s like a lawyer in court,” he says.

“They don’t ask a question without already knowing the answer. Farmers can take the same approach with banking.

“That starts with clarity on strategy: why are you in business, what are you trying to achieve, and over what timeframe?

“Then comes capability – the people, systems, and financials needed to deliver on that strategy.”

Finally, it’s about being upfront about what could go wrong.

“Credit managers are trained to look for weaknesses,” Wishart says.

“Every business has them. The stronger approach is to acknowledge those weaknesses, explain why they exist, and show what you’re doing to address them.”

Farmers might feel confident about the next season or two, but banks think in decades, he says.

“Most banks are applying a long-term stress test rate of around 8 to 8.5% at the moment.

“They want to know what happens if interest rates are higher, returns are lower, and costs are up – all at the same time.

“If they’re funding you for 20 years, they know there’ll be some tough years in there. They want to be confident your business has enough resilience to survive those downturns.”

Wishart says many farmers leave money on the table because banks are working off outdated information.

“We often see farm valuations that are five years old or financials that don’t reflect recent improvements,” he says.

“Updating valuations, preparing accurate forecasts, and clearly showing risk reduction measures can shift how a bank categorises a client, leading to better lending terms.”

In other cases, farmers can agree performance milestones with their bank, like reducing interest rates once debt is paid down or budgets are met.

Wishart says many farmers have been with the same bank for decades and that a strong, proactive relationship can deliver most of the benefits without changing lenders.

“But if trust has broken down, sometimes a clean break is needed.”

He says non-bank lenders are also playing a growing role.

NZAB has placed over $500 million into the non-bank market in the past 18 months, often as transitional funding when banks step back.

“While it is slightly more expensive, this type of capital can help a farmer prove their strategy and refinance back to a main bank later.

“With $150 billion of assets expected to change hands over the next generation, we’ll need innovative capital solutions,” Wishart says.

The biggest mistake farmers make, he says, is approaching the bank half-prepared.

“If you present a poorly thought-through proposal and the bank declines it, that ‘no’ can stick,” he warns.

“You really only get one chance to present an opportunity well.

“Do the work first – get advice to help you prepare and plan – before you go anywhere near the bank.”

Federated Farmers, New Zealand’s leading independent rural advocacy organisation, has established a news and insights partnership with AgriHQ, the country’s leading rural publisher, to give the farmers of New Zealand a more informed, united and stronger voice. Federated Farmers news and commentary appears each week in its own section of the Farmers Weekly print edition and online.