Market dynamics

The Rise of Autonomous Livestock Finance Drives a Shift in Market Dynamics

A trend that has had a clear influence on the business environment for Australian ranchers and livestock agencies in recent years has been the rise of stand-alone livestock finance mechanisms.

Not so long ago, farmers looking to buy more livestock to capitalize on increased feed after rains were usually limited in what they could buy by the margin left on their overdraft.

If their overdraft was already ‘tapped’, producers had to rely on other livestock owners or with cash to purchase commercial inventory, in order to generate income by selling their feed.

But in recent years, a lot has changed.

The emergence of stand-alone, specialized livestock finance mechanisms that use livestock rather than land as the underlying collateral has given producers who may be cash-poor the opportunity to purchase livestock when the time is right. and the opportunity presents itself.

Loan products also typically involve quick turnaround times to make a decision and access funds, and up to 100% financing for livestock purchases.

The main trade-off for this speed and flexibility is that livestock financing can often be more expensive than traditional bank financing.

Tim Prior

Indeed, the underlying asset class offered as the primary security – financed livestock – “is very liquid and organic”, Tim Priorchief operating officer of pioneering livestock finance company StockCo, explained.

“In terms of security, most livestock lenders have access to other assets and/or the ability to register a caveat on the property, but only in the event that the client defaults,” said he declared.

“So in the normal course of business, our security is the livestock we have purchased on behalf of our customers.

“Depending on the terms of the contract with the livestock lender, it could be a lease or a loan.”

Chris Howiewho held national roles in the livestock agency industry before joining StockCo as business development manager (and who also writes a monthly livestock market column for Beef Central and Sheep Central), said the he emergence of livestock financing mechanisms has “disappeared the glass ceiling”. .

“Take an arrogant grain for example. They have their whole harvest, they have drawn their overdraft to the limit with the bank, and they might only be able to trade 500 lambs a year,” he said.

“Now those same customers can use their feed potential that can handle 3,000 lambs a year because they can access financing and match stocking rate to carrying capacity.

“They can trade more livestock without leveraging their own equity or tap into bank financing, and transact in a timely and opportunistic manner, allowing them to create large trading margins.

“In some cases, it gives them time to reconfigure their main facilities, allowing their business to grow.

“So that allowed them to become very nimble and use available streams in real time instead of having to wait for funding and miss the moment.”

The rise of specialized livestock finance has effectively provided access to business finance at an independent agency or farm level, he said.

“Whereas before that an agency had to go out and get its own trade finance facility, and when cattle prices went up, $10 million didn’t go very far.”

StockCo pioneered livestock financing in Australia as a stand-alone product in 2014 after successfully operating the model in New Zealand since 1995.

The company’s livestock finance offerings have been refined and complemented since the early days, while additional products have also emerged from agricultural banks to livestock agencies and other stand-alone providers.

Each varies in the moving parts of their financial products, financing costs and eligibility criteria, but the net result has been a subtle but significant change in the dynamics of the Australian livestock market.

Mr Howie estimates there are now “several thousand” installations in place across the industry.

While some would have been inactive over the winter, with spring now upon us a return to over 50% utilization would be expected, he said.