Hi JohnThe overhang of farms is because there are obviously more...

Hi John

The overhang of farms is because there are obviously more sellers than buyers but the reason for this is the traditional family farmer no longer has the ability to consolidate let alone upscale because the 'easy credit' has gone and the number one cost for the majority of farmers is no the cost of servicing debt. Debt are just too high and not sustainable.

To date the only real buyers in the market in volume have been State based like the Hassad Group and significant Chinese activity (targeting 100,000 ha in the next year or so, think they already have 60,000ha). But nowhere near enough buyers to take the volume off the market to avoid toxic overhang.

The primary cause of this explosion in grain farm debt of $12 billion is a combination of dry seasons, other poor profitability scenario seasons (eg rain at harvest causing downgrading, too wet etc) and too much use of credit to achieve economies of scale. There was never a plan for the world not being as hungry as we had hoped or were being told. You don't won't to go chasing scale with credit when farmland prices are falling!

My feeling is we are about to experience a US subprime housing style debt crisis down at the grain farm. the caveat is in WA we are unique in that we have a grower owned co-op called CBH which could be brought to the equities market for $4-7 billion and allow that equity to come home to the balance sheets of farmers. Ironically farmers value the co-op more than themselves because many oppose corporatisation despite the prospect of only being handed a $2 cheque for their share when they exit the co-op.

Farmers are their own worst enemies! I am worried but I always worry ... my strong equity will get me through but I fear the damage that will be done on rural communities will be irrepairable. Let alone the loss of cousins and friends.