Record low cash rate underpins fall in interest payments – ABARES

Over the past two decades beef farm debt has generally increased; however this has largely been underpinned by overall scale and farm value growth. According to ABARES’ recently released Financial performance of beef farms, 2013–14 to 2015–16, average beef cattle farm debt has approximately doubled since 2000, to what was just over $450,000 in 2014-15.

However, overall changes in the debt to equity structure have not been as significant, indicating overall debt has increased more-or-less in line with overall scale and farm value. In addition, ABARES highlight that equity ratios are typically higher for larger farms as they are able to access and service larger debts.

While the debt to equity ratio has not significantly shifted in recent years, the cost of servicing debt has fallen, with the Reserve Bank of Australia’s cash rate currently at an all-time low of 1.5%. In 2015-16, ABARES survey results indicate interest payments for beef cattle producers, as a share of total cash receipts, approached 5% – well below the ten-year average of 9% and the lowest level since 2002. The cost of interest has also been dwarfed by the significant rise in beef cattle producer cash receipts in the last two financial years.

As highlighted in this separate article, a similar trend has also occurred in the lamb industry – where overall debt has increased in line with equity, and interest payments have fallen.

Click here to access historical data from ABARES Australian Agricultural and Grazing Industries Survey.