21 Oct 2014

Loan links interest rate to milk payout

7:59 am on 21 October 2014

A new up to $100 million fund plans to lend to dairy farmers at interest rates based on the milk payout.

The amount of capital that farmers repay will be the original sum borrowed, plus an extra amount if the value of their farms rise.

http://www.radionz.co.nz/national/programmes/businessnews/audio/20154138/new-loans-for-dairy-farmers-link-interest-rates-to-milk-payout Listen to more on Morning Report

MyFarm and the German fund manager Aquila Capital have launched a joint venture called NZ Dairy Farming Trusts, which is looking for wholesale investors and hopes to start lending to farmers in June 2015.

Andrew Watters, executive director of Aquila Capital Farms New Zealand, says the interest rate will change 0.02 percentage points for each 1 cent move in the milk price.

That means at Fonterra's current forecast milk price of $5.30 per kilo of milk solids, the interest rate would be 2.6 percent.

Last year's milk price of $8.40 would mean an 8.8 percent interest rate.

Mr Watters said the second component of the loan is more like an equity investment, with the repayment based on the value of the land as set out in the Real Estate Institute's dairy land index.

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