Dairy farm cashflows and budgets need reworking to reflect both reduced milk production and payout and higher farm working expenses, NZAB director and chief executive Scott Wishart says.
Despite cash revenue remaining at historically high levels, available cash is now forecast to among the lowest in recent years.
“The reducing milk price and higher costs and interest rates have taken the shine off what was otherwise looking like a good season,” Wishart said.
NZAB is the largest nationwide agricultural financial advisory firm working with farmers and growers and their lenders and uses its own data platform to track client revenue and expenditure in real time.
Overdraft limits may need to increase and budgets this year for $1.35/kg of loan principal payments may be as much as $1 too optimistic.
Tax payments also need serious consideration because significant terminal taxes from FY22 will trigger big increases in provisional taxes for FY23.
“It is critical that the revised cashflows are reviewed by the accountant to ensure that any appropriate adjustments to provisional tax are made,” Wishart said.
“Also, the impacts of this season need to flow through into next year, keeping everything in perspective.
“Dairy farm businesses remain resilient and have banked significant gains in the balance sheet since the last downturn, so let’s not lose sight of this.”
Wishart said the NZAB analytics platform shows that cash is disappearing in dairy farm accounts.
Milk production budgets were for 3% increase on last season’s actuals but wet and cold months in October and November have dragged the trend back to last season’s levels.
Monthly payouts so far have been 31c down on the budget, which was $8.39, and 44c down on last year.
When FY22 ended with farm working expenses at a record $5.41/kg, farmers sought reductions in key areas, budgeting on average at $5.27.
“There was also a dilution effect in the budget by the forecast increase in production against largely static costs in dollar terms.
“However, the combined impacts of lower production, increased supplement usage in the early part of the season and further inflationary impacts have led expenses to rise significantly again.”
For FY23 the actual plus forecast farm working expenses are now $5.63, including feed and grazing costs that are already much higher, along with vehicle expenses and administration.
In the administration category are bank fees, particularly undrawn overdraft and facility fees.
Real increases in interest costs are showing up, Wishart said.
Although budgetary allowances were made for a 37% increase (99c up to $1.37), the real rates increase is now up 58c on last year.
After putting production, payout, revenue and costs into a spreadsheet, the net impact on cash available for investment is down $1.30 on last year (forecast $1.73 versus $3.02).
“When reforecasting cashflow it is important to include the possibility of further downside and uncertainty in timing stock sales and feed purchases,” he said.
