Financial Factors
1999/2000 Review
Revenue
Farmers expected gross revenue to be up by 15-20% on 1998/99 due to a combination of better prices, better stock growth rates, and higher stock numbers carried. Farmers had optimistic revenue and price expectations for next year. However, they were concerned about the volatility of the exchange rate and were very aware that a large part of the price increase was exchange rate, not market, driven. Farm businesses were encouraged to moderate their price expectations for the current year, particularly where they are being used to assess the viability of new ventures.
Expenditure
Farm working expenses were up by about 25% on 1998/99. This included "catch-up " maintenance and capital expenditure, spending on fertiliser and lime, fencing, and building improvements. Concern about high taxable revenues for this year is influencing some expenditure decisions.
Prices for all classes of store and prime beef, deer and sheep were extremely buoyant throughout the year. Contributing were good feed conditions, substitution into more cattle, competition between meat exporters, improvement in the United States and Asian beef markets and the steadily weakening New Zealand dollar.
Contrary to the traditional pattern, prices continued to climb throughout
the autumn. High store cattle and lamb prices this autumn "squeezed up" trading
margins. Traders were nervous about the prices they had to pay for R1yr and R2yr cattle
this autumn. A 10% appreciation in the value of the New Zealand dollar would mean the loss
of much of their wintering margin.
Lamb and venison prices were affected to a lesser extent. Weaner deer prices have already taken a correction this autumn as a result of similar fears.
Capital purchases were higher than in recent years, as farmers moved to replace plant they considered should have been replaced several years ago.
National average market prices for the year ending 30 June 2000 have been used to estimate both opening and closing stock values for the model. The effect of this was to mask the large "holding gain" that occurred on many properties due to the increase in the value of stock at 30 June 2000 compared to 1 July 1999.
Net Result
While the model showed a satisfactory net trading profit of $62,700, this translated into a negative cash figure once drawings, principal repayments, development and capital purchases had been allowed for. These all reflected the optimism farmers felt after a year of relatively good performance and prices, but off-farm income made a significant contribution to the outcome.
2000/01 Forecast
Revenue
The 2000/01 forecast shows an expected increase in gross farm revenue of $98,000, as the change in policy takes effect. Gross sheep revenue is similar to last year, while gross cattle revenue has increased markedly. This reflects the change in emphasis towards cattle finishing. Gross farm revenue is expected to increase as stock purchases stabilise in the new regime.
Expenditure
Cash farm expenses are predicted to increase by about $26,000, the majority of which is due to an expected general increase in farm input prices of around 10%. Significant predicted increases in tax payments, drawings and capital purchases all contribute to a disposable deficit, although one which is considerably less than last year.
Net Result
Cash farm surplus is expected to increase by $71,985 and net trading profit by $35,569. This year a small disposable surplus of $5,846 is anticipated, after a deficit in the previous year.
Current account interest rates have increased by approximately 1.5% during the year. Term rates have increased by a lesser amount due to over 50% of term debt being fixed. Further increases of 1-1.5% for next year have been budgeted for, which could be an under-estimation.
Because of their smaller size, these farms are very sensitive to changes to revenue and expenditure, i.e., small increases in gross farm revenue can lead to large increases in net farm revenue once overhead costs are fully covered. The opposite applies when gross revenue declines.
Some large taxable revenues have been generated this year upon which higher provisional tax will have to be paid next year. Less provisional tax paid this year means many farmers will also have to pay a large amount of terminal tax next year.
Although there have been few genuine sales of this class of land in the last 12 months, there is a general perception that land values will have firmed over the period. This is placing increasing pressure on this class of land from urban drift. Demand for lifestyle blocks and alternative land uses is steadily forcing up land values, making it increasingly difficult to achieve a satisfactory return on total capital employed.
The individual market values for stock at 30 June 2000 will be up by 25-30% for cattle, and 10-15% for young sheep and deer. Current account debt levels are 20-30% lower than at the same time last year. A significant amount of term debt has also been paid off.
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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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