Financial Factors
1999/2000 Review
Revenue
Changes in revenue over recent years are shown in Table 3. Note that the model changed in the 1999/2000 year, and comparison of gross figures with those in earlier years should be treated with caution. For this reason, comparisons are discussed on an opening per stock unit or per hectare basis.
Sheep meat and cattle revenue have continued to improve, while revenue from wool has steadily declined.
Cattle revenue increased by $11.68/su (net of purchases) compared to the 1998/99 year. This produced an average cattle sale price for the 1999/2000 year of $651.36/hd and revenue of $38.45/su (net of purchases). The average cow sale price of $558/hd was up $168, resulting from a combination of a high schedule and heavier cows at slaughter.
Sheep revenue increased by $4.76/su (net of purchases) when compared to the 1998/99 year. Lamb prices were strong throughout the season, averaging $43.26/hd, which was up $7.19/hd on the previous year. This increase resulted from a combination of higher carcass weights and a strong schedule. Income from sheep sales net of purchases was $26.54/su. The average ewe price for 1999/2000 was $28.22/hd.
Wool returns have steadily declined (by 17%) from $13.28/su in 1996/97 to $11.02/su in 1999/2000. The price decreased from $2.42/kg in 1998/99 to $2.34/kg in 1999/2000. There was also a decrease in the per head wool weight from 5.03 kg/su in 1998/99 to 4.7 kg/su in 1999/2000.
Table 3: Cash Farm Revenue ($)| Actual | Actual | Actual | Actual | Actual | Forecast | |
| 1995/96 | 1996/97 | 1997/98 | 1998/99 | 1999/2000 | 2000/01 | |
| Sheep Sales Less Purchases | 105,585 | 150,400 | 151,944 | 148,136 | 174030 | 191,155 |
| Cattle Sales Less Purchases | 93,405 | 107,601 | 128,154 | 120,888 | 195,250 | 241,747 |
| Wool | 104,533 | 91,722 | 82,305 | 82,699 | 72,224 | 71,391 |
| Other Income | 8,500 | 7,000 | 12,050 | 14,000 | 18,022 | 14,117 |
| Gross Farm Income | 312,023 | 356,723 | 374,453 | 365,723 | 459,526 | 518,410 |
Expenditure
Cash farm expenditure for 1999/2000 was $354,257, which is up significantly on the previous year (by 17.6% on a per hectare basis). Cash expenditure, at $240/ha, was 77% of gross farm revenue (excluding depreciation).
Wages, at 25%, were the biggest item of expenditure. They increased by $0.92/su over the previous year as farmers increased wage rates and employed additional casual staff. In some cases there were also one-off higher ACC payments due to privatisation.
Fertiliser was the second largest expenditure item in 1999/2000 at $39,798, up only $0.04/su on the previous year. Decreases in fertiliser price led to a higher tonnage being applied during the 1999/2000 year. This resulted in the application of 11 kg of phosphorous (P) per hectare, but was still 33% below the maintenance rate, which is assessed at 16.5 kg of P/ha pa.
Farm forestry is now an increasing component on farms, averaging $3,462 in expenditure. These properties are often on extensive country and some have erosion problems. Afforestation has been utilised to address these problems, with farmers using assistance from the East Coast Forestry Project. The annual silviculture costs are now evident in the model.
Shearing costs are high at $5.14/su, but have decreased marginally in recent years ($5.28/su in 1998/99). This was in line with a slight reduction in sheep numbers due to drought conditions and facial eczema.
Repairs and maintenance spending increased by 32% as farmers correctly forecast improved trading and responded by increased on-farm maintenance. This also occurred with weed and pest spending. Variegated thistle, blackberry and gorse were the main weeds being sprayed.
Interest rates were low at the start of the 1999/2000 year but increased throughout the year, with a total of $3.74/su being spent.
Capital purchases increased to $7,836 in 1999/2000. This was again in response to improved trading for the year.
Net Result
The 1999/2000 cash farm surplus of $105,269 was a significant improvement on the previous year, up to $9.05/su (80%).
Principal repayments on term loans amounted to only $12,572. However, the most dramatic change was in the current account where an improvement of $78,880 was recorded.
2000/01 Forecast
Revenue
Gross farm revenue is forecast to increase by $58,884 (12.8%) to $518,410 during the 2000/01 year, equating to $352/ha and $43.24/su. Farmers are confident of achieving this result because of good production prospects at the start of the year. This is due to a combination of high stock weights, high pregnancy rates, and good pasture covers.
Cattle revenue is forecast to increase to $241,747 (by 24%), or $44.79/su net of purchases. Farmers plan to sell 18% more cattle in the 2000/01 year as they stabilise their cattle numbers. The average cattle price will increase only slightly from $651/hd in 1999/2000 to $668/hd in the 2000/01 year. Farmers do not believe prices will increase, but they are hopeful of selling stock at higher weights. The price for cull cows is predicted by farmers to remain at about $555/hd. Cattle revenue is predicted to make up 46.7% of the total revenue in 2000/01.
Revenue from sheep sales (net of purchases) increases from $26.54/su to $29.00/su for 2000/01. This 9.3% increase is made up of increased sale numbers through 109% lambing (up 6%), and stabilised capital livestock numbers. Consultants and industry advisers believe this increase in lambing percentage could be too optimistic. Lamb prices are forecast to decrease from $43.26/hd to $40.85/hd. Ewes prices are also predicted to reduce from $28.22/hd to $27.80/hd in 2000/01.
Wool revenue (both price and weight) is predicted to remain relatively stable, at $2.36/kg and 4.6 kg wool/su. Wool revenue in 2000/01 is forecast to be only 13.8% of total revenue.
Expenditure
Total expenditure is estimated to increase by only 3.1%, from $354,257 to $365,270 ($30.46/su) in 2000/01. The increase of $11,013 is mainly for additional planned initiatives and not inflation of general costs. Costs per stock unit are the same as in 1999/2000. Farmers are not fully accounting for cost increases associated with the low $US/$NZ exchange rate.
Permanent wages are forecast to increase by 4.8% to $83,970, which is 23% of cash farm expenditure.
Fertiliser expenditure is budgeted to increase by $7,614 to $47,412, or
$3.95/su. This includes an increase in fertiliser price and additional application. In
2000/01 farmers plan to apply 12 units of P/ha on average compared with a full maintenance
requirement of 16.5 units of P/ha. Increased fertiliser application is recognised by
farmers as one of their better investment options for any additional funds.
Repairs and maintenance increases by 12.5% as farmers complete fencing, building, yards, and track repairs.
Shearing costs are forecast to decrease by $0.47/su from that spent in 1999/2000. This would appear optimistic in light of recent shearing wage increase negotiations.
Weed and pest control increases by only $888. However, a greater proportion is planned to be spent on gorse and blackberry than in the past due to the current low incidence of variegated thistle.
Fuel is anticipated to decrease slightly in 2000/01 to $5,332, but is a small component of cash farm expenditure (1.5%) on this farm type.
Interest is forecast to decrease from $3.74/su to $3.48/su. The successful 1999/2000 year will mean a lower level of borrowing requirement, especially in the current account. However, this will be somewhat countered by a higher interest rate for all non-fixed rate borrowing.
Taxation for 2000/01 has been included at the forecast average cost provided by the farm survey. This cost is $16,629 for the model and is considered to significantly understate the actual tax liability in 2000/01. Based on a two-person partnership, and including terminal tax from 1999/2000, the tax liability in 2000/01 would amount to $53,752. Tax planning is likely to assume an increased level of importance with farmers.
Increased spending of $4,518 on development is forecast, as farmers implement on-farm projects that they have not been able to afford in recent years.
Capital purchases are budgeted to continue at a similar level to last year, at $7,680. Farmers plan to use this opportunity to continue to upgrade vehicles and essential plant.
Net Result
The cash farm surplus for 2000/01 is forecast at $153,140, or $104/ha. This is historically a strong result for this model type. However, taxation of $16,629, along with depreciation and livestock value adjustments, will see the net trading profit after tax decrease to $126,569, compared with $110,301 in 1999/2000. This net trading profit will reduce to $89,446 if the higher level of tax paid eventuates (as discussed previously).
The return (net trading profit) on equity capital before taxation is 5.01%.
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