Young farmers advised not to go into land ownership

Mr McDonald said such farmers, who wanted to start off in agriculture, should instead focus on going into farm "business".

He was speaking to more than 200 farmers at the recent Farm Tender 2024 conference in Marnoo.

Mr McDonald said entrant farmers should focus on their ability to turn a profit, whether that be through leasing or farm management, rather than getting bogged down in debt after buying land.

"Even if they're going into a family farm, it doesn't matter because they're running a business operation," he said.

"I'd be focusing on that."

He said times were changing where more of the new farmers coming through were focused on making profit through their farms, rather than being obsessed with owning land.

He said this was different to the outlook of older farming generations.

Riverland Lending Services supports clients to develop financial and life-time plans for their farms ahead of seeking bank finance.

Mr McDonald said developing such a plan for a farm, including planned enterprises, machinery purchases and succession, became a ready-made loan application for banks.

However, he said a lot of family farms are struggling to outline this long-term plan at present.

"They're potentially not making profit any more and they're struggling to present that they're making profit," he said.

"So, they can't access that bank finance.

"Banks are very discerning at the moment about where they're lending to going forward."

He said farmers were getting caught in the scenario where they were land asset rich but non-profitable.

He described a familiar situation where a farm was worth $25 million but the farm owners were in $6m of debt.

Mr McDonald also said farmers should factor in the depreciation of their machinery into their business plans.

He said if a farmer can outline this plan to banks, they would be receptive.

"If you're buying a piece of equipment, you need to judge how long you'll keep it and how much it will depreciate over that time," he said.

"Can you finance it on the same structure?"

He said if a $100,000 tractor was going to be worth $50,000 in five year's time, it was costing $10,000 a year for the farmer.

"If that's not affordable, then it's actually not affordable," he said.

Mr McDonald also said when it came to lending, banks were wanting to ensure that there is a plan around succession and that there were going to be no issues in future.

"They want to see that there's not an issue with succession," he said.

"The first reason files go into bank collection departments is divorce and the second reason is poor succession."

On bank lending interest rates, Mr McDonald said there was an inaccurate perception that they were very high.

"We are right now at exactly 10 year average interest rates," he said.

"There's a perception that they're high - they're not."

He also said he did not expect interest rates to fall significantly any time soon.

On land prices, Mr McDonald said they were at the "top".

"I would potentially suggest that land prices might come back a bit, certainly on expectations," he said.