Originally Posted by
Roger
This is how I also see it. Reserve bank are forecasting a potential 18% average sector credit losses in a protracted downturn for dairy, (dairy stay's under $5 kilo for four years). This would translate to the potential for approx. $37m in losses at face value for HNZ ($207m x 18%) if things go really bad for the sector, (nobody can be sure whether they will or won't), based on average loan to valuation ratio's for the sector but seeing as it would appear HNZ's loans are at the higher end of the LVR spectrum in a worse case dairy situation losses for HNZ could be higher, exacerbated by sharp potential continuing declines in dairy farm values. That said spread the loss recognition over a number of years and its certainly manageable but nonetheless I think cautious people might like to consider this apparent headwind in their thinking. Optimists will be hoping for a recovery in dairy prices next year, as I am because its good for the economy as a whole as well as our hard working dairy farmers. Nonetheless I think its useful to have an peek into the abyss and an estimation of how bad the sector losses could be in a worst case scenario and the Reserve Bank obviously also thinks so too.