Financial Factors
1999/2000 Review
Revenue
Gross farm revenue for the model for 1999/2000 was up $25,000 (13%) over 1998/99. Higher beef returns, up $15,000 (31%), and higher lamb returns contributed, with sheep meat incomes up $11,000 (12.5%). Wool income was down marginally.
The average lamb price for this model improved 20% to $41.38. This was made up of a proportion of lambs sold on a relatively flat store market prior to Christmas 1999, and a greater proportion carried through the summer and sold on an ever improving finished lamb market through the autumn. The usual autumn price drop, which is expected in response to supply increases in these months, did not occur this year. In fact, as the New Zealand dollar fell, lamb prices kept improving, and are continuing to improve through the winter.
The ewe price remained at levels similar to the previous year. Five-year-old cast-for-age ewes enjoyed strong demand, with numbers for sale well down as farmers held back ewes to rebuild breeding flock numbers. Fat ewe prices were at levels similar to last year and remain at about 30% below the excellent prices of previous years. There is no sign of a mutton price recovery and more ewes were retained to mate in the autumn with subsequent winter killing of those not in lamb.
Wool revenue remained depressed, with total returns down 2% on last year. Lambswool through mid-season appeared almost unsaleable, with record low prices of $2.00-$2.20/kg. By early winter, the few farmers selling late season second shear wool were pleasantly surprised to see a 60 cents/kg (23%) price improvement. Farmers have little faith in the wool industry and are far more focused on meat production this year.
All levels of the cattle supply chain exhibited a strong sellers' market. Supply of calves, store cattle, finished cattle and breeding cows are all down as the effect of the mid-1990s beef market slump is felt both in and beyond the farm gate. This cattle shortage is exacerbated by the poor growth rates of the last two years. The effect is unprecedented demand for available stock. The autumn beef price of more than $3/kg is a record for this time of year, and has been close to the best ever prices of 1994.
Expenditure
Farm working expenditure increased by around $7,000 (5.7%) in 1999/2000 compared to 1998/99. The main increase in spending was on repairs and maintenance.
Fertiliser application on the model equated to 16 kg of phosphate per hectare, which is almost at full maintenance level. While farmers are very aware of the need to maintain fertiliser input, many farms represented by this model have struggled to apply two-thirds to three-quarters of maintenance in recent years. With extra cash in hand, farmers are now looking to return to maintenance dressings. Only two of the 20 properties monitored for this model applied no fertiliser in 1999/2000.
Expenditure on repairs and maintenance on the model, at $17,310, was 53% up compared to 1998/99. Again, with the extra income in hand, farmers were looking to catch up on maintenance that had been deferred for many years, and in particular to repair damage that occurred during the very wet winter of 1998. Repair of internal access, and upgrading of water supply and fences were given priority.
Debt servicing costs remained very similar to 1998/99 as most farmers have a significant proportion of their mortgage on a fixed rate.
Net Result
Three factors have combined to produce a greatly improved net result for the central North Island hill country farms: higher sheep meat and beef prices, improved climate and stock health effects, and low inflationary pressures.
The net trading profit after tax for the model was $52,339. Allowing for drawings, principal repayments and capital purchases, the disposable surplus was $11,200. Priorities for spending this will be for a mix of: some into farm spending, some into replacing vehicles, and some into debt reduction, particularly seasonal debt.
While there are signs of some development throughout the region, such as scrub being cut, none of the surveyed farms had any plans for a development programme.
2000/01 Forecast
Revenue
Gross farm revenue for 2000/01 is forecast to improve by around $5,500 (2.5%) over 1999/2000. The main improvement is an increase in sheep meat returns, on the back of an increased lambing percentage.
Farmers are budgeting very conservatively for next year. Being well aware that the improvement in product prices is very much driven by the exchange rate, there is a general expectation that the exchange rate will increase through 2000/01. Hence most were budgeting on similar beef prices to those in 1999/2000, and a slight decrease in lamb prices. They were slightly more optimistic on wool, budgeting for a 5% increase in wool returns.
Average lamb price for the model is budgeted at $40.10, down slightly on 1999/2000. However, lambing percentage is predicted to be up, at 113%, compared to 109% in 1999.
Wool production is expected to remain relatively constant at around 5.3 kg/ssu. There is some expectation for a 10-20 cents/kg improvement in prices for second shear and hogget wool, but little improvement on other lines. For cattle, most farmers are budgeting for no more than $2.90-$3.00/kg net on the farm - roughly equivalent to what they achieved in 1999/2000.
Expenditure
Farm working expenditure is budgeted to be up by 10% in 2000/01. Most farmers are concerned about inflationary pressures and have consequently allowed for some increase in prices across most farm working expenditure.
Expenditure on fertiliser is up by $6,000 (24%). This is a combination of allowing for a full maintenance dressing of fertiliser, plus an allowance for an expected 5% increase in the cost of fertiliser. Shearing costs are up by 9%, in anticipation of further increases for contract shearing.
Expenditure on repairs and maintenance is up by $1,000 (5%) as farmers again anticipate further catch-up in this area. Interest costs have also increased by around $1,500 as farmers move out of fixed contracts and subsequently are affected by higher interest rates. Taxation is also significantly higher (41%), as farmers need to meet the cost of terminal tax on 1999/2000 income.
Overall, cash farm expenditure as a proportion of gross farm revenue increases to 59% in 2000/01 compared to 54% in 1999/2000.
Net Result
The net trading profit after tax for the model in 2000/01 is $41,200, down $10,000 (21%) on 1999/2000. This is largely the result of the increase in cash farm expenditure, offset only slightly by a small increase in gross revenue.
After allowing for drawings, principal repayments, and capital purchases, the model operates at a slight loss, which is offset by off-farm income. While farmers are looking to spend more on their properties, particularly on fertiliser and repairs and maintenance, they are likely to hold off any significant expenditure until they have a much clearer idea of likely product prices for the coming year.
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Monitoring and Evaluation
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