Financial Factors
1999/2000 Review
Revenue
Gross revenue rose to an average of $43.96/su during the 1999/2000 year with cattle out-performing sheep due to the significant lift in the cattle market. On a gross margin basis cattle returned $49.48/su while sheep generated $43.33/su. The model figures reflect the retention of stock so that actual cattle revenue appears to be less than sheep.
Due to favourable lambing conditions the average lambing percentage lifted to 115% survival to sale. Fifteen percent of the model farmers lambed hoggets.
The average lamb price was $41.92, reflecting the extremely favourable growing conditions and the relatively flat price schedule over the summer. Many farmers also capitalised on the strong pre-Christmas chilled meat market by lambing older ewes early. These lambs commanded premium prices and also allowed the cull ewes to be sold early.
Because many of these properties shear prior to lambing, the benefits of any lift in wool price during the wool selling season was not evident. The average greasy wool price was $2.61/kg. Wool sales contributed around 27% of total sheep income. This is a very significant slide in the proportion of income generated from wool sales, and greatly concerns farmers.
Meat companies announced spring contracts prior to weaner cattle and deer sales. With the good supply of autumn feed on many finishing properties, the weaner cattle market was very strong. Steer calves averaged $456/hd and heifers $418/hd. These sales lifted the returns from hill country breeding cows dramatically and interest in breeding cows was rekindled. This trend of a slight increase in breeding cow numbers is projected to continue into the 2000/01 financial year.
Those farmers selling R2yr heifers and steers did not experience the dramatic lift in sale prices for calves. The average price for R2yr heifers was $517/hd and steers $585/hd. The additional heifer calves retained are likely to be for a small increase in the breeding cow herd.
Farmers appreciate that the key to profitability is to increase gross revenue. The gap between the top 10% of farmers, based on net farm profits, and the average seems to be getting wider. The top group of farmers has high per head performance, and has a diversified income stream of both prime and forward store sales.
Expenditure
Cash farm expenditure, at $187,650 ($33.31/su), represented 59% of gross income in the 1999/2000 year. Farm operating costs continue to increase. In part this is due to the run-on costs of the drought years (feed) and "catch-up" expenditure that has been deferred through seasons of lower profitability (fertiliser and repairs and maintenance)
Animal health expenditure is increasing. Farmers are making more use of "long acting" drench options at lambing in an attempt to reduce crutching costs, fly strike incidence, and improve pre-weaning lamb growth rates. More abortion vaccines are being used to reduce the impact of devastating abortion storms.
Extra costs associated with lamb shearing, coupled with higher shearing costs, have increased shearing expenditure.
Fertiliser expenditure has increased by 20% on a per hectare basis for three main reasons: improved returns; reduced fertiliser price; and reduced aerial application costs (through more powerful top dressing aircraft).
Expenditure on feed shows some run-on from the drought of 1998/99 as farmers replenish stocks. A lot of wrapped balage is being made.
Expenditure on seeds is higher, not just for pasture renovation following the drought, but also for specialist stock finishing feeds. Direct drilling has become an increasingly popular means of pasture renovation.
Repairs and maintenance expenditure has shown a small lift. Catch-up maintenance that had been deferred during the drought years occurred this year. Insultimber fences installed in the 1980s development programmes have been upgraded.
Vehicle expenditure has shown a lift as deferred maintenance is completed on many properties. A non-replacement policy in recent seasons due to reduced levels of profitability is resulting in additional repairs on vehicles. Actual expenditure on vehicle repairs was $6.89/ha for the year.
Interest and rent was $42,200, or $7.49/su. Rentals account for $1.24/su, which are both external and family-related charges.
From the gross income of $247,000, interest consumes 14.2%.
Personal expenditure is slightly higher in anticipation of a profit being generated through a better climatic season and improved product prices. Personal items accounted for $32,600 in the 1999/2000 year.
Development and capital purchases for the year amounted to $13,000, evenly split.
Net Result
The net trading profit generated for the 1999/2000 year for personal, taxation, principal repayment, depreciation and profit is $62,900 ($11.18/su, or 25.4% of gross farm revenue). This is a significant improvement on the 1998/99 net trading profit of $44,500.
The increased profit has resulted in a positive improvement of $7,300 in the cash position.
2000/2001 Forecast
Revenue
Gross farm revenue is projected to rise by $20,500 to $268,000, or $44.54/su, in the 2000/01 financial year ($43.96/su in 1999/2000). Most of the increase in gross revenue can be attributed to the additional 266 stock units grazed rather than large increases in performance.
Sheep returns are projected to rise to $46.89/su ($45.39/su in 1999/2000) due entirely to a 2% budgeted increase in lambing percentage.
Most farmers are budgeting for only a 2% increase in lambing, despite heavier ewe mating weights. Last year's lambing was helped by exceptional survival through mild weather conditions. Lamb prices will hold at present levels for the coming season.
Beef returns are projected to hold at close to the returns received in 1999/2000, but again the increase in cow numbers (17) has deferred the revenue.
Breeding cow numbers are edging up a little through improved beef cow profitability and farmers think this will continue for another season. Some breeding cow units are hoping to hold weaner cattle over and attempt to finish them, while others took advantage of the high weaner prices and sold all their progeny except replacements. A similar trend is anticipated for the 2000/01 season.
Some expansion into a deer breeding herd is taking place. Concern over product price stability (particularly weaners) and the capital expenditure required to get into deer has left many farmers only thinking about this diversification.
Expenditure
Cash farm expenditure is forecast to rise slightly to $199,400 ($187,650 in 1999/2000) but shows a similar level in the per stock unit expenditure.
Farm
wages are projected to rise by $2,000 as farmers bring in additional casual labour and
shift permanent salary rates slightly.
Animal health expenditure will stay the same, but with greater awareness and concern over dip residues and parasite resistance, farmers will carefully assess if the treatments are justified.
Feed costs show a slight reduction over the previous year as the autumn drought reserves have been maintained at a high level. Little supplementary feed has been fed in early winter 2000 due to favourable weather conditions.
Shearing costs are expected to rise as shearers attempt to negotiate a rate increase. Farmers have considered moving away from pre-lamb shearing, and this has assisted in spreading the shearers' workload a little. This may help provide the remaining shearers with a more even workflow and more stable income.
Fertiliser expenditure has been maintained as there is a general desire to keep fertiliser inputs up to maximise animal production and optimise pasture production and survival.
Repairs and maintenance generally remained at 1999/2000 expenditure levels with "catch-up" maintenance on fencing, tracks, and water supply critical on dry hill country operations. Track maintenance has generally reduced over recent years due to a lack of profitability and the increasing use of four-wheel motorbikes that do not need tracks. Despite the rugged nature of these bikes, track maintenance requirements have caught up and now tracks are not good enough for either bikes or other vehicles. As more stock units are being run per labour unit, stock and labour access becomes more critical.
Interest and rent payments are anticipated to rise by $4,000, or 42 cents/su, largely through anticipated interest rate increases and increased working capital requirement. Servicing additional development and capital purchases funding in 1999/2000 has also added to the costs. Interest and rent are projected to consume 17% of gross income - up 0.2% on the previous year.
Personal drawings are anticipated to rise slightly to $35,000, or a 7% increase over actual expenditure from the previous year.
Net Result
The net cash change is estimated to be $22,400 - an increase of $15,000 over 1999/2000. Most of the additional profitability can be attributed to the increased stock numbers rather than any substantial change in income or expenditure per stock unit.
Development and capital purchases for the year are forecast to drop to $4,600 from $13,000 in 1999/2000. Development shows the most significant reduction to $1,000 (compared to $6,800 in 1999/2000) while forecast plant replacement drops to 50% of actual expenditure in 1999/2000.
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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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