Financial Factors
1999/2000 Review
Revenue
Gross farm revenue (net of livestock purchases) in 1999/2000 increased by $211/ha on 1998/99 due to a combination of better prices, better stock growth rates, and higher stock numbers.
Sheep revenue (net of purchases) increased from $209/ha in 1998/1999 to $296/ha in 1999/2000. Cattle revenue (net of purchases) increased from $86/ha in 1998/99 to $162/ha in 1999/2000.
Lamb prices averaged $47.15/hd, $9.69 higher than originally forecast in 1998/99, and $10.47 above the prices received in 1998/99.
The average wool price increased slightly from $2.45/kg in 1998/99 to $2.52/kg in 1999/2000. This increase can be attributed to the depreciating dollar.
The average R2yr steer increased from $700/hd in 1998/99 to $765/hd in 1999/2000. Cull cow prices increased from $390/hd in 1998/99 to $639/hd in 1999/2000.
Expenditure
Due to the increase in revenue in 1999/2000, summer moist farmers increased cash farm expenditure in 1999/2000 by $7.01/su on 1998/99, partly due to concern over high taxable revenues. The increase in cash farm expenditure was primarily due to "catch-up" maintenance and capital spending on fertiliser, fencing, and building improvements.
Interest was the largest expense, at 20.5% of cash farm expenditure.
Interest payments increased in 1999/2000 by $2.93/su compared to 1998/99, reflecting a
rise in interest rates and a change in the survey sample associated with the model.
Fertiliser and lime was the second largest expense, at 15.9% of cash farm expenses. Spending on fertiliser and lime increased in 1999/2000 by $0.68/su compared to 1998/99. Farmers spent more on lime. Spending on fertiliser and lime as a percentage of cash farm expenditure decreased by 1.4% when compared to 1998/99.
The other major components of cash farm expenditure were animal health (10.4%), shearing (10.3%), repairs and maintenance (9%), and wages (8%).
Net Result
The 1999/2000 cash farm surplus of $104,974 was a significant improvement on the previous year, increasing by 23% to $229/ha ($22.80/su). The increase in cash farm surplus arising from high gross revenue resulted in a net trading profit (taxable) of $106,339 - an increase of $105/ha when compared to 1998/99.
Principal repayments decreased in 1999/2000. This is due to a change in farms monitored, which has resulted in a difference in debt structure.
Closing current account debt levels were 20-30% lower than at the same time in 1998/99, indicating that a significant amount of short-term debt was also repaid.
2000/01 Forecast
Revenue
Gross farm revenue is forecast to increase by $15,404 (5.4%) to $295,551 in 2000/01, equating to an increase of $23.20/ha and $1.15/su. This is due to expected increases in sheep and wool revenue.
Wool revenue is expected to increase by $6,087 ($1.58/ssu) due to a small increase in the expected price and several model farms using an eight month shearing policy and shearing twice in 2000/01.
Although the lamb price is forecast to decrease by $0.59/hd in 2000/01, sheep revenue is expected to increase by $9,268 (6.5%) in 2000/01. This is due to a small increase in lambing percentage, more stock being carried over balance dates, and greater trading in lambs during 2000/01. This indicates a change to a more flexible stocking policy.
Expenditure
Cash farm expenditure is forecast to increase by $7,186 (4.1%) during the 2000/01 year, equating to an increase of $8.86/ha and only $0.21/su. Consultants and industry advisers consider that farmers have not fully accounted for cost increases associated with the low New Zealand dollar and the recently announced increase in shearing costs.
As in 1999/2000, interest is the largest cash farm expenditure item, at 20.9%, followed by fertiliser and lime (15.9%), wages (9.3%), shearing (8.5%), animal health (7.9%), and repairs and maintenance (6.3%).
Interest is forecast to increase by only $0.18/su despite the rise in interest rates. This results from the 1999/2000 reduction in current account debt.
Development and capital purchases are expected to decrease in 2000/01, by $5,305 and $3,073 respectively, indicating that farmers took advantage of good returns and caught up on development during the 1999/2000 year. This could also indicate that farmers budget conservatively when it comes to development and capital purchases, preferring to wait for the realisation of high returns before allocating money to development and capital purchases.
Large taxable revenues were generated in 1999/2000 upon which higher provisional tax will be paid in 2000/2001. Due to lower levels of provisional tax being paid in 1999/2000, many farmers will pay a large amount of terminal tax in 2000/01. MAF calculated the tax due in 2000/01 based on the 1999/2000 year taxable revenue plus 10%, and calculated terminal tax as $37,940. However, the average of the farmers surveyed is only $26,545.
Net Result
Cash farm surplus for 2000/01 is forecast at $113,192, an increase of $8,218 on 1999/2000. Due to the calculated tax bill in 2000/01, net trading profit after tax is forecast to decrease by $7,858 ($20.30/ha) when compared to 1999/2000.
Economic farm surplus increased by $16,252 ($31/ha) in 2000/01. The ratio of economic farm surplus to total farm capital is calculated to be 7% in both 1999/2000 and 2000/01. This is a very satisfactory level of profitability not experienced in the farming sector for over 15 years.
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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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