- The Canterbury/Marlborough hill country farm
- Key points
- Physical factors
- Financial position of the farm
- Issues and trends
- Budget
10 Canterbury/Marlborough hill country sheep and beef
The Canterbury/Marlborough hill country farm
This model represents hill country farms in Marlborough, Canterbury foothills and Banks Peninsula. Most farms breed replacements, finish up to 50 percent of their sheep stock and run breeding cows and some finishing cattle.
Up to 30 percent of the area is able to be cultivated and occasionally some irrigation cropping is undertaken. Much of the uncultivated land has been developed through subdivision, fertiliser and over sowing. Farmers produce mid-micron wool or crossbred wool with some fine wool producers.
Changes to effective farm area through development leasing and purchase have occurred and the effective area of the model has been increased by 69 hectares to 1149 hectares.
The model assumes the ownership is in a family partnership and tax has been calculated using two partners.
Table 10.1: Canterbury/Marlborough hill country sheep and beef model summary, 2005/06
| Effective area | 1 149 ha | Total stock units wintered | 6 459 su | |
| Opening stock wintered | Breeding cows | 161 hd | ||
| Breeding ewes | 4 171 hd | R1yr cattle | 164 hd | |
| Replacement ewe hoggets | 547 hd | R2yr cattle | 44 hd | |
| Other sheep | 230 hd | Other cattle | 6 hd |
Key points
- A mild winter and good early spring in 2005 preceded a cool mid-spring and dry summer and autumn.
- Lamb and calf weaning weights were below-average and sale weights were also below-average.
- A record lambing of 122 percent and calving of 94 percent failed to offset significantly reduced store and prime lamb prices.
- Gross revenue declined 12 percent, to $391,000, from last year while farm working expenses rose 8 percent to $251,000.
- Net profit after tax decreased 64 percent and the net cash change deteriorated significantly to –$15 300 from $23,800 in 2004/05.
- For 2006/07, farmers are budgeting for a 2 percent decline in revenue primarily as a result of lower lambing and calving percentages and an increase in farm expenses.
Table 10.2: Key parameters of the Canterbury/Marlborough hill country sheep and beef model
| 2002/03 | 2003/04 | 2004/05 | 2005/06 | 2006/07f | |
|---|---|---|---|---|---|
| Effective area (ha) | 1 003 | 1 003 | 1 080 | 1 149 | 1 151 |
| Opening sheep stock units | 4 423 | 4 341 | 4 864 | 4 588 | 4 495 |
| Opening cattle stock units | 1 610 | 1 774 | 2 008 | 1 872 | 1 962 |
| Opening total stock units | 6 224 | 6 242 | 6 842 | 6 459 | 6 457 |
| Stocking rate (su/ha) | 6.3 | 6.2 | 6.3 | 5.6 | 5.6 |
| Ewe lambing (%) | 110 | 111 | 120 | 122 | 115 |
| Average lamb price ($/hd) | 53.90 | 55.54 | 56.85 | 47.45 | 52.91 |
| Average wool price ($/kg) | 4.08 | 3.71 | 3.23 | 3.03 | 3.17 |
| Total wool produced (kg) | 21 337 | 19 812 | 22 300 | 20 564 | 20 802 |
| Wool production (kg/ssu1) | 4.80 | 4.56 | 4.58 | 4.48 | 4.63 |
| Average R2yr steer ($/hd) | 854 | 656 | 780 | 783 | 733 |
| Average cull cow ($/hd) | 433 | 380 | 550 | 541 | 0 |
| Gross farm revenue ($) | 372 300 | 361 598 | 442 608 | 391 088 | 382 290 |
| Cash farm surplus ($) | 120 800 | 116 240 | 153 631 | 79 713 | 61 532 |
| Net trading profit ($) | 145 300 | 117 140 | 121 606 | 66 566 | 62 411 |
| Disposable surplus/deficit ($) | – 21 160 | – 13 065 | 780 | – 30 493 | – 30 040 |
Note
1 Sheep stock unit.
Symbol
f Forecast
Physical factors
In 2005, farms in Canterbury and the Marlborough hill country experienced favourable winter conditions for the fourth year in a row. There were very few snowfalls over the winter, contributing toward higher than average pasture growth through winter. Early spring weather was favourable for lambing and coincided with above-average September pasture growth rates. However, a cooler October slowed pasture growth on many farms with the effect of reducing pasture covers at a time when ewes were maximising lactation. This check in the feed supply reduced ewe milk production, with the result that weaning weights were lower by approximately 1.5 to 2 kilograms per lamb.
The stable weather conditions during lambing were a significant contributor toward high lamb survival rates and lambing overall was one of the best on record at 122 percent, which is up an additional 2 percent over the 2004/05 year. Hogget lambing also increased from 69 percent in 2004/05 to 73 percent, despite some properties experiencing an increase in vaginal prolapse (“bearings”) which appeared to affect a higher number of hoggets than normally experienced.
During November the hill country farms experienced the onset of dry conditions. Fortunately, the lower frequency of northwest winds meant the impact on feed growth was less severe than the impact of the reduced rainfall could have been. The dry summer continued for most hill country properties through until mid-April. Marlborough and North Canterbury had earlier rains at the start of April than the remainder of the region.
For many properties the arrival of autumn rain was too late to have a significant impact on mating feed supplies and most farmers were forced to use supplementary feed. There has been a significantly variable response in bodyweight gain during flushing and mating. It is expected that this will have a negative impact on 2006 scanning and lambing percentages.
The cooler October followed by a dry November led to less supplementary feed being conserved. Fortunately, in many cases good reserves of supplement had been carried forward from the previous season, mainly due to the favourable winter reducing overall stock requirements for supplementary feed. Farmers responded by attempting to increase the area of green feed crops grown, both for feeding of sale lambs and for capital stock if required.
The dry early summer conditions encouraged many farmers to change policy and sell more lambs as stores, although significant regional differences occurred. August lambing farms generally sold in late November and December when the store lamb market held up well and good prices were recorded. Those farmers lambing later and not weaning until late December/early January were affected by a significant reduction in store value of their stock. Fifty-one percent of lambs were sold store in 2005/06 compared to 38 percent in 2004/05.
Farmers with green feed crops tended to hold onto lambs longer with the aim of achieving a higher price at a later sale date. However, the dry conditions affected green feed crops and yields were only average or below average, which culminated in some farmers carrying additional numbers of lambs through into increasingly dry mid to early autumn conditions with deteriorating feed supplies.
Calving in spring 2005 was slightly better than the previous year, with mixed age cows calving at 94 percent (up from 93 percent). First calving heifers calved at 88 percent for the 2005/06 year, which was significantly better than 72 percent calving in 2004/05. Generally, cow mating conditions were good even though feed covers were reducing by late November/December.
The dry late summer/early autumn contributed to lower weaning weights of sale calves by five to 10 kilograms below average, largely due to the lack of surplus feed and pasture top, which cows generally use to maintain condition. As a result, some calves were weaned up to one month earlier than normal in order to protect cow condition from deteriorating too much.
Sheep numbers declined between 2004/05 and 2005/06 as a result of the reduction of trading stock on hand at the end of the year. While farmers lowered surplus stock numbers to cope with the dry conditions they protected their breeding base numbers, and breeding ewe numbers increased by 81 head over the same period. Cattle numbers continued to increase for the fourth successive year, with total cattle numbers rising by 19 head in the 2005/06 year on the back of a rise in 2004/05 by 19 head. The additional cattle retained are generally male cattle being held through to sale as yearlings or through to slaughter as two-year-olds. In-calf cattle numbers remain steady through both years.
The small amount of deer numbers in this model dropped by 8 percent in 2005/06 and are projected to drop a further 7 percent in 2006/07 to close at 67 head, including 36 breeding hinds. This trend is predicted to continue as farmers seek a better return from sheep and cattle.
The estimate of liveweight wintered indicates a small decline in 2005/06 at 370 kilograms liveweight per hectare, compared to 2004/05 at 389 kilograms liveweight per hectare, mainly due to the reduction in trading sheep. However, there is forecast to be a 2 percent increase in stock numbers carried for 2006/07, which would lift the liveweight wintered to 377 kilograms liveweight per hectare. The liveweight sold is estimated at 225 kilograms liveweight per hectare for 2005/06, a decrease of 6 percent over the 2004/05 season at 240 kilograms liveweight per hectare.
The top 25 percent quartile in this model produces an average of 324 kilograms liveweight per hectare (44 percent better than the average of 225). These properties are also noted as having greater scale than average (27 percent more stock units), higher stocking rates than average (24 percent higher stocking rate), higher lambing percentages (10 percent higher), and higher lamb prices ($2.90 higher), and fewer lambs sold as stores (10 percent fewer).
Financial position of the farm
Review of 2005/06
Revenue
Gross farm revenue declined 12 percent from $442,600 in 2004/05 to $391,090 in 2005/06. The majority of this decrease came from a reduction in sheep net revenue (down 20 percent) and a reduction in wool revenue (down 13 percent) while offset by an increase of cattle revenue of 14 percent. It should also be noted that the model farm has declined by 281 sheep stock units from 2004/05 to 2005/06, which is a significant component of the sheep sale revenue.
The average lamb price was $47.50 per head in 2005/06, which was $9.40 lower (down 16 percent) than the previous year. Forty-three percent of the lambs were sold prime at $53.06 in 2005/06 compared with 62 percent at $60.00 in the previous year. The difference in store lamb and prime lamb price is maintained at $8.00 per head between 2004/05 and 2005/06.
The variation in price received for both prime and store lambs varied significantly through different stages of the lamb selling season. Generally, good prices were received prior to and including November, but December through to March saw a sustained fall in lamb prices. Many farmers refused to sell lambs at prices being offered ($30.00 to $35.00 per head) and retained trading lambs much longer than normal into early to mid-autumn before sale. Higher prices were achieved as a result, but at a significant feed cost. Farmers who carried store lambs longer struggled to put significant weight on because of the dry summer and relatively poor green feed crops that were grown. Subsequent higher prices received were generally due to a lift in the lamb schedule.
Those properties selling mid-micron store lambs were significantly affected compared to crossbred lamb farms. Through the mid to late summer period mid-micron lamb offers were significantly discounted compared to offers for crossbred lambs. In some cases buyers were not prepared to make an offer on the mid-micron lambs.
Compared with 2004/05, wool production declined by 8 percent in 2005/06 to 20 564 kilograms, largely because of lower sheep numbers. Wool revenue, at $13.60 per sheep stock unit, is down 8 percent on the previous year, largely as a result of a decline in average wool price from $3.20 down to $3.00 in 2005/06. The combined effects of lower sheep numbers and reduced prices have decreased total wool revenue by 13 percent to $62,000. The decline in wool revenue per sheep stock unit is increasingly influenced by the change in sheep breeds from mid-micron to crossbred types, but is also affected by the overall decline in mid-micron and crossbred wool prices in 2005/06.
The net cattle margin rose strongly to $109,000 in 2005/06 (up $13,000) while cattle stock units also increased by 84. The average sale price only increased slightly by $18 per head in 2005/06 to $741 per head. Contribution from deer continues to decline, providing less than 1 percent of total gross revenue. Grazing income, which contributed $8,200 in 2004/05, generated no income in 2005/06, due to the extended dry conditions from early summer through to mid-autumn.
Table 10.3: Canterbury/Marlborough hill country sheep and beef cash farm revenue
| 2002/03 ($) | 2003/04 ($) | 2004/05 ($) | 2005/06 ($) | 2006/07f ($) |
|
|---|---|---|---|---|---|
| Sheep sales less purchases | 209 000 | 182 940 | 259 760 | 207 582 | 194 572 |
| Cattle sales less purchases | 66 000 | 94 602 | 96 145 | 109 366 | 110 595 |
| Wool | 86 900 | 73 580 | 72 000 | 62 310 | 65 941 |
| Grazing income | 0 | 6 614 | 8 190 | 0 | 0 |
| Other income | 10 400 | 3 862 | 6 512 | 11 830 | 11 182 |
| Gross farm revenue | 372 300 | 361 598 | 442 607 | 391 088 | 382 290 |
Symbol
f Forecast
Expenditure
Farm working expenses have increased by 8 percent, from 2004/05 to $251,300, and increased as a proportion of gross farm income to 64 percent (53 percent in 2004/05). This represents $39.00 per stock unit of farm working expenses compared to gross revenue at $61.00 for a margin of $22.00 per stock unit.
The cost of production measured against farm output amounts to $2.08 per kilogram of carcass weight sold or $1.78 per kilogram carcass weight plus wool sold. The increase in cattle income was due to selling more cattle at the slightly higher price.
The total wage bill has increased by 17 percent over the 2005/06 year to $33,600. This now represents 13 percent of total farm working expenses. Permanent wages increased by $6,300 and casual wages decreased by $1,400 as farmers moved to secure more permanent and stable labour forces on their farms and through increased wages for permanent staff in an increasingly competitive rural labour market.
Animal health expenditure at $3.29 per stock unit remained relatively static compared to 2004/05. This reflects the trend of recent years to a more objective assessment of animal health strategies, in particular aiming to reduce the use of long-acting drench capsules where possible. Feed expenses increased by $630.00 or 3.2 percent to $3.20 per stock unit. While there was a reduction in hay and silage made due to the dry late spring and early summer, this was offset by an increase in green feed establishment costs.
Fertiliser and lime expenditure remains relatively static in 2005/06 at $44,000 or $6.80 per stock unit after initially projecting to spend $46,500. This broke the trend of recent years of increasing fertiliser expenditure (up 25 percent in 2004/05) as farmers responded to the poor lamb price and dry summer/autumn weather conditions and delayed fertiliser applications. It also reflects the ongoing trend of North Canterbury and Marlborough hill country farmers continuing to use strategic nitrogen to boost pasture production in the autumn and spring in place of maintenance fertiliser applications. Farmers are starting to consider applying nitrogen more frequently as they gain experience with the nitrogen strategy.
Shearing expenses held at $23,660 or $5.16 per sheep stock unit. Although shearing costs per sheep are continuing to rise, the change of breed from mid-micron on some properties negates the need for wool classing and some properties are experimenting with shearing pattern changes resulting in a reduced price per sheep shorn, leading to a static overall shearing cost. Shearing expenses consumed 38 percent of the wool proceeds compared to 33 percent in 2004/05.
Total vehicle expenses have increased by 17 percent to $24,402 in 2005/06, with fuel contributing a 33 percent increase to $2.09 per stock unit. Repairs and maintenance expenses increased 27 percent in 2005/06 to $17,900. Much of these expenses had been committed before farmers realised how significant the reduction in income would be from declining sheep returns.
Interest and rent expenses declined by $2,250 to $60,000 in 2005/06 ($9.31 per stock unit and 15 percent of gross revenue). The decline in interest is primarily due to principal repayments of $45,600 in the 2004/05 year, which more than offset the increase in interest rates during 2005/06. Farmers reduced principal repayments by 75 percent to $11,550, down from $45,600 in 2004/05. Farmers’ intentions for 2005/06 had been to make principal repayments of $35,000, but they decided to reduce principal repayments when the impact of the reduction in lamb prices became apparent. Only 50 percent of the farmers surveyed made principal repayments. New borrowings increased slightly to $7,950 in 2005/06. The net result of increased borrowings and reduced principal repayments was a year-end total debt rise of $36,000 to $576 000.
Farmers also moved to significantly reduce development and capital expenditures with development declining 32 percent to $10,890 and capital purchases declining 14.5 percent to $15,450. Much of the matagouri development spraying has now finished and subdivision fencing is also being reduced.
Average drawings have lifted to $48,890, an increase of 4 percent from 2004/05. While this increase reflects the cost of inflation, the ongoing costs of education continue to be a major component of the increase in drawings.
Net result
Net profit after tax declined by 54 percent in 2005/06 to $43,000. After allowance for new borrowings, cash drawings, decreasing off-farm income, and reinvestment, a net cash change deficit of $15,300 was achieved compared to a surplus of $23,900 the previous year, a $39,000 reduction.
Forecasts for 2006/07
Revenue
Gross farm revenue for the model farm is projected to decline $8,800 to $382,290. This is mainly due to reduction in sheep revenues which are offset slightly by an increase in cattle revenue and wool income through to June 2007.
Total stock units are projected to remain static. A small decline in sheep stock units will offset an increase in cattle stock units. In both cases breeding numbers remain stable but trading stock numbers decrease and increase respectively.
Poorer autumn 2006 mating conditions, tight feed supplies going into winter 2006, and unseasonably early snow are projected to significantly impact on lambing percentage. This is anticipated to decline to 115 percent from 122 percent in 2005/06. Hogget scanning is also predicted to decline from 73 percent to 70 percent as a result of bodyweights being lighter at mating than in autumn 2005.
The forecast reduction in lambing percentage is expected to be offset by an increase in average lamb price from $47.00 in 2005/06 to $53.00, giving a forecast decrease in sheep revenue of $17,000 to $223,000. Wool production is projected to be similar at 4.6 per kilogram sheep stock unit, but wool prices are projected to lift from $3.03 to $3.17 per kilogram.
Breeding cow numbers are projected to remain static at 169 cows. While other cattle numbers are projected to fall slightly (less seven head), cattle stock units are projected to increase as farmers take finishing cattle through to older age groups prior to forward store sale or slaughter. However, farmers are expecting a decline in market prices with a fall from $740.00 per head sold in 2005/06 to $705.00 per head in 2006/07. Consequently, the expanding beef enterprise is only projected to contribute an increase of $1,200 to $111,000 net proceeds.
Expenditure
Farm working expenses are projected to increase only slightly by 2 percent to $256,000 in 2006/07. As a percentage of gross farm income the cash working expenses are projected to be 67 percent in 2006/07 compared to 64 percent in 2005/06. Feed expenses are projected to increase as farmers move to replace supplementary feed reserves used in winter 2006 and to repair any pasture damage from the summer/autumn drought of 2006 and grass grub and porina damage from autumn 2006. Shearing costs are expected to continue to increase due to lifting shearing rates. Fertiliser costs are projected to decline slightly (by $950) to $40,000. Fuel and freight costs are projected to continue their strong increase of 2005/06, while repairs and maintenance costs are expected to hold.
Cash disposal is projected to fall by 1 percent. Decreases are forecast in principal repayments (to $8,500), development expenditure (to $5,200), and capital purchases (to $7,900), while drawings are projected to increase slightly to $49,900. Taxation costs are projected to continue to decline in 2006/07 to $20,000 as a result of the decline in income and adjustments made by accountants in autumn 2006.
Overall this farming class are aiming to hold farm working expenses where possible while maintaining breeding numbers and protecting the production base.
Net result
The net profit after tax is projected to fall by $700 to $42,400. Interest costs are predicted to rise significantly as a result of higher seasonal debt levels incurred in the 2005/06 year and a slight increase in interest rates. Lease costs are projected to be at a similar level as 2005/06. Debt levels are projected to increase by $36,000 (7 percent) to $576,000 at June 2007. Overall, a net cash change of –$23,000 is predicted for the year, which continues the trend of 2005/06 (deficit of $15,000).
Figure 10.1: Canterbury/Marlborough hill country sheep and beef profitability trends
Issues and trends
While farmers are anticipating a reduced lambing percentage and a net cash loss, in practice it is likely that adjustments in expenditure will take place if the scanning and lambing percentages are verified. This best estimate of the 2006/07 year is likely to be amended in the areas of fertiliser expenditure and further sell down of trading stock over wintered in order to minimise any net cash loss.
Farmers are striving to lift productivity per ewe, particularly lambing percentage, which is challenging many farmers to consider a breed change. Many have decided they want to move away from the mid-micron half-bred/Corriedale type flocks, but are confused as to which of the plethora of breed options available to them will suit their property best. Where farmers have made changes, a re-evaluation of their farming systems is being forced due to the changes in feed demand, timing of lambing and matching of stock sales to market requirements. This is expected to take a considerable period of time to work through and settle into a stable farming policy.
The sensitivity of revenue and cash result to lambing percentage is significant as a 1 percent change in lambing percentage represents $2,380 of cash surplus or 3.7 percent of the farm cash surplus projected for 2006/07. If the lambing percentage returned to 122 percent (the record lambing of 2005/06) this would represent approximately three quarters of the net cash change deficit for the year. Without this lambing percentage farmers will need to consider cutting expenses or increasing trading stock options.
The increasing trend in this farming class to finishing more lambs prime and less store is a result of the increasing development of this class of country and the desire to lift returns from surplus lambs. Re-engineering of these farming systems is occurring as is gaining a greater understanding of the flexibility of this class of country to cope with a need for higher quality feed for finishing stock; and the flexibility and risk associated with imposing finishing or semi-finishing systems on traditional breeding and store country. This trend reduces the supply of store lambs for other classes of country.
The sharp decline in lamb prices, particularly after December, affected some members of this farming class severely. This has caused them to question the merits of finishing lambs on their own properties after they sold prime lambs for a little more than that received for store lambs. Although this may be a seasonal issue farmers are concerned about the costs of finishing lambs and the impact this has on summer ewe feed and the ability to grow out young stock well.
Farm development of unproductive scrub areas into pasture combined with land purchase or leasing in recent years has seen the effective area increase by 146 hectares (15 percent) between 2001/02 and 2005/06.
Stock numbers between 2001/02 and 2004/05 increased by 1005 stock units (up 17 percent) with increases in breeding ewes and finishing stock to 6842 stock units, although this has consolidated at 6454 stock units (an increase of 617 stock units or 11 percent since 2001/02) in the 2005/06 and 2006/07 years.
While climatic reasons have led to the stock consolidation in 2005/06 and 2006/07 there is a clear intent by farmers to increase the degree of finishing stock before sale and to carry more non-breeding stock while maintaining the base numbers of breeding stock. There is a strong desire in this class of country to improve profitability and profit margins.
The development of Matagouri hill country with metsulfuron herbicides, followed-up with over sowing and additional subdivision is slowing down with reduced farm incomes. Farmers are consolidating the development already done but are putting future development plans on hold until surplus income becomes available.
Farmers are continuing the trend of recent years to use nitrogenous fertilisers to overcome strategic feed shortages. They are starting to increase the number of applications as they learn about the responses and effect of different timings of application. Farmers on this class of country are becoming more sophisticated in their fertiliser use, moving away from Superphosphate maintenance fertiliser only policies. Lime applications on hills are being put on hold due to increasing costs of application. There are some instances of farmers applying no fertiliser in 2005/06 in an effort to reduce cost to match reduced income levels. This trend could continue if farm profitability continues to decline as predicted in 2006/07.
More permanent labour is being employed as management programmes become more intensive with the increase in per head productivity and the increasing occurrence of buying in store stock for finishing. Farmers are moving towards securing access to labour and to the higher levels of skills required on these properties. Casual labour is increasingly difficult to source and use of contracting (for applying drench capsules, dagging, tailing, etc.) is increasing. Many owners are noticing the increasing difficulty in getting time off the property as intensity of management increases and the degree of seasonality of work load reduces. There is an increasing incidence of job sharing of labour between properties to try and provide more time flexibility.
Farmers are noting the increased number of rabbits on their properties. Levels are still well below pre-calici virus levels, but in some cases farmers have initiated night shooting as a means of retaining some control.
Farmers are increasingly commenting on continued interference with land property rights and escalation of costs imposed on them by regulatory authorities. While Environment Canterbury’s draft Natural Resources Regional Plan (NRRP) is progressing, many farms are still unaware of what amendments are being made and what the implications will mean for their farming operations. Farmers report their extreme concern and confusion as to access issues being discussed at central government level, particularly the potential interference with farm management practices, the proximity of access to homesteads and yards and issues of security.
The impact of variable telecommunications coverage and access differs throughout the region. While mobile coverage has improved in recent years, there are still significant areas that do not have reliable access. While most farmers have access to dial-up internet, many farmers report they don’t use it regularly because of its slow speed and unreliability. Older farmers tend to be less concerned about broadband coverage. The younger generation, with greater computer literacy and higher expectations of the value and importance of good internet access, are commenting about missed opportunities through lack of broadband access.
Interest rate increases are not yet concerning farmers greatly, as the majority of farming loans are locked in to long-term fixed interest. However, increases in seasonal finance interest rates and a considerable increase in average seasonal finance levels is starting to alert farmers to the potential cost of interest to the farm business, particularly with reducing gross revenues and the possibility that this may continue in the future. While farmers have the flexibility to reduce principal repayments and are using this option, they are aware of the long-term impact of static debt levels and many farmers express a desire to see loans reduced in the medium term. However, farmers see an increase in productivity and thus gross revenue as a higher priority.
Farmers are concerned about the significant increases in costs for this class of country while their incomes remain relatively static. Older farmers who farmed in the 1980s and 1990s are particularly cost conscious and are working on keeping costs under control where possible. Younger farmers who generally have not been in such tight financial constraints remain optimistic and are less concerned about the impact of costs, instead following policies to increase productivity to keep ahead of cost increases. Industry commentators, particularly farm consultants and accountants, express concern that farmers have under-estimated the level of cost increase to be expected in 2006/07. Even though farmers are budgeting for an expenditure increase to 66 percent of gross farm income, concerns are that the level may be higher.
A significant proportion of farmers and their accountants reduced the tax payments on the second half of 2005/06 season by formally revising downwards their income estimates and provisional tax payments. This is expected to flow on into 2006/07 with a further 14 percent reduction in tax paid.
Table 10.4: Canterbury/Marlborough hill country sheep and beef budget
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm ($) | Per ha ($) | Per su ($) | Whole farm ($) | Per ha ($) | Per su ($) |
|
Revenue | ||||||
| Sheep | 240 205 | 209 | 52.36 | 223 037 | 194 | 49.62 |
| Wool | 62 310 | 54 | 13.58 | 65 941 | 57 | 14.67 |
| Cattle | 144 585 | 126 | 77.25 | 149 452 | 130 | 76.16 |
| Grazing income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Other farm income | 11 830 | 10 | 1.83 | 11 182 | 10 | 1.73 |
| Less | ||||||
| Sheep purchases | 32 623 | 28 | 7.11 | 28 465 | 25 | 6.33 |
| Cattle purchases | 35 219 | 31 | 18.82 | 38 857 | 34 | 19.80 |
| >Gross farm revenue | 391 088 | 340 | 60.55 | 382 290 | 332 | 59.20 |
| >Cash farm expenditure | 251 315 | 219 | 38.91 | 256 493 | 223 | 39.72 |
| Interest | 47 740 | 42 | 7.39 | 51 825 | 45 | 8.03 |
| Rent and/or leases | 12 320 | 11 | 1.91 | 12 440 | 11 | 1.93 |
| Cash farm surplus | 79 713 | 69 | 12.34 | 61 532 | 53 | 9.53 |
| Stock value adjustment | 5 456 | 5 | 0.84 | 19 009 | 17 | 2.94 |
| Minus depreciation | 18 603 | 16 | 2.88 | 18 130 | 16 | 2.81 |
| Net trading profit | 66 566 | 58 | 10.31 | 62 411 | 54 | 9.67 |
| Taxation | 23 431 | 20 | 3.63 | 19 989 | 17 | 3.10 |
| Net trading profit after tax | 43 135 | 38 | 6.68 | 42 422 | 37 | 6.57 |
Allocation of funds | ||||||
| Add back depreciation | 18 603 | 16 | 2.88 | 18 130 | 16 | 2.81 |
| Reverse stock value adjustment | – 5 456 | – 5 | – 0.84 | – 19 009 | – 17 | – 2.94 |
| Drawings | 48 887 | 43 | 7.57 | 49 875 | 43 | 7.72 |
| Principal repayments | 11 550 | 10 | 1.79 | 8 533 | 7 | 1.32 |
| Development | 10 890 | 9 | 1.69 | 5 225 | 5 | 0.81 |
| Capital purchases | 15 448 | 13 | 2.39 | 7 950 | 7 | 1.23 |
| Disposable surplus/deficit | – 30 493 | – 27 | – 4.72 | – 30 040 | – 26 | – 4.65 |
Other cash sources | ||||||
| New borrowing | 7 950 | 7 | 1.23 | 4 000 | 3 | 0.62 |
| Off-farm income | 7 238 | 6 | 1.12 | 2 525 | 2 | 0.39 |
| Other cash income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Net cash change | – 15 305 | – 13 | – 2.37 | – 23 515 | – 20 | – 3.64 |
Assets and liabilities | ||||||
| Farm, forest and building (opening) | 3 570 250 | 3 107 | 552.73 | 3 895 500 | 3 384 | 603.28 |
| Plant and machinery (opening) | 124 020 | 108 | 19.20 | 120 865 | 105 | 18.72 |
| Stock valuation (opening) | 586 952 | 511 | 90.87 | 592 408 | 515 | 91.74 |
| Total farm capital | 4 281 222 | 3 726 | 662.80 | 4 608 773 | 4 004 | 713.74 |
| Total debt opening | 539 314 | 469 | 83.49 | 575 672 | 500 | 89.15 |
| Equity | 3 741 908 | 3 257 | 579.30 | 4 033 101 | 3 504 | 624.58 |
Symbol
f Forecast
Table 10.5: Canterbury/Marlborough hill country sheep and beef expenditure
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm ($) | Per ha ($) | Per su ($) | Whole farm ($) | Per ha ($) | Per su ($) |
|
Farm working expenses | ||||||
| Permanent wages | 28 848 | 25 | 4.47 | 28 767 | 25 | 4.45 |
| Casual wages | 4 778 | 4 | 0.74 | 6 118 | 5 | 0.95 |
| ACC | 7 004 | 6 | 1.08 | 5 851 | 5 | 0.91 |
| Animal health | 21 250 | 18 | 3.29 | 22 137 | 19 | 3.43 |
| Breeding | 1 306 | 1 | 0.20 | 1 331 | 1 | 0.21 |
| Electricity | 5 765 | 5 | 0.89 | 6 230 | 5 | 0.96 |
| Feed (hay and silage) | 11 977 | 10 | 1.85 | 14 465 | 13 | 2.24 |
| Feed (crops) | 3 116 | 3 | 0.48 | 3 110 | 3 | 0.48 |
| Feed (grazing) | 4 188 | 4 | 0.65 | 4 200 | 4 | 0.65 |
| Feed (other) | 1 272 | 1 | 0.20 | 1 420 | 1 | 0.22 |
| Fertiliser | 40 874 | 36 | 6.33 | 39 922 | 35 | 6.18 |
| Lime | 3 051 | 3 | 0.47 | 3 146 | 3 | 0.49 |
| Farm forestry costs | 311 | 0 | 0.05 | 366 | 0 | 0.06 |
| Freight (not elsewhere deducted) | 5 958 | 5 | 0.92 | 6 234 | 5 | 0.97 |
| Re-grassing costs (contractors) | 9 776 | 9 | 1.51 | 10 408 | 9 | 1.61 |
| Shearing costs (per ssu) | 23 660 | 21 | 5.16 | 24 645 | 21 | 5.48 |
| Weed and pest control | 8 272 | 7 | 1.28 | 8 555 | 7 | 1.32 |
| Fuel | 13 472 | 12 | 2.09 | 14 910 | 13 | 2.31 |
| Vehicle costs (excluding fuel) | 10 930 | 10 | 1.69 | 9 692 | 8 | 1.50 |
| Repairs and maintenance | 17 862 | 16 | 2.77 | 17 228 | 15 | 2.67 |
| Communication costs (phone and mail) | 3 321 | 3 | 0.51 | 3 394 | 3 | 0.53 |
| Accountancy | 3 651 | 3 | 0.57 | 3 419 | 3 | 0.53 |
| Legal and consultancy | 1 504 | 1 | 0.23 | 1 212 | 1 | 0.19 |
| Other administration | 2 464 | 2 | 0.38 | 2 553 | 2 | 0.40 |
| Rates | 7 799 | 7 | 1.21 | 7 800 | 7 | 1.21 |
| Insurance | 5 641 | 5 | 0.87 | 5 734 | 5 | 0.89 |
| Water charges | 2 339 | 2 | 0.36 | 2 339 | 2 | 0.36 |
| Other expenditure | 926 | 1 | 0.14 | 1 307 | 1 | 0.20 |
| Cash farm expenditure | 251 315 | 219 | 38.91 | 256 493 | 223 | 39.72 |
Calculated ratios | ||||||
| Economic farm surplus (EFS1) | 52 814 | 46 | 8.18 | 51 677 | 45 | 8.00 |
| Cash farm expenditure/GFR2 | 64% | 67% | ||||
| EFS/total farm capital | 1.2% | 1.1% | ||||
| EFS less interest & lease/equity | – 0.2% | – 0.3% | ||||
| Interest+rent+lease/GFR | 15.4% | 16.8% | ||||
| EFS/GFR | 13.5% | 13.5% |
Notes
1 EFS (or Earnings before interest and tax) is calculated as follows:
gross farm revenue plus change in livestock values less working expenses less
depreciation less wages of management (WOM). WOM are calculated as follows:
$31,000 allowance for labour input plus 1% of total capital as managerial
reward. An upper limit for WOM of $75,000 has been set.
2 Gross farm revenue.
Symbol
f Forecast
Contact for Enquiries
Farm Monitoring Programme Manager
Monitoring and Evaluation
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
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