Now’s the time to do a bud­get

Pay­out set to fall for 2012 year

South Waikato News - - NEWS -

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Bud­get and plan, plan, plan’’ are the watch­words for this dairy­ing sea­son say in­dus­try ad­vis­ers, as calv­ing in the Waikato gets un­der way and the white gold starts flow­ing again. DairyNZ re­gional team man­ager Craig Mc­Beth said farm­ers are feel­ing rea­son­ably ‘‘pos­i­tive’’. They ended last sea­son on a high note with good grass growth and have rea­son­able amounts of sup­ple­men­tary feed on hand. Many cows are record­ing half a body con­di­tion score higher than the com­pa­ra­ble time last year, which au­gurs well for mat­ing in the com­ing spring. But Mc­Beth is cau­tion­ing farm­ers not to be com­pla­cent. ‘‘They need to feed their cows as fully as pos­si­ble to main­tain that (im­proved body con­di­tion) through to mat­ing. ‘‘Cash­flow will be quite tight and they need to plan for that. This will be a poorer in­come year.’’ Mc­Beth said a lower pay­out fore­cast for the 2012 year means cash­flow will be lower in Au­gust and Septem­ber than last year. Even though in­ter­est rates are low and 2011-2012 milk pro­duc­tion was high, farm­ers will have big­ger tax bills to con­sider and ex­tra Fon­terra shares to pay for out of 2012 year pay­out. ‘‘There’s profit there from last year but farm­ers need to plan (have a bud­get).’’ Ac­coun­tant Peter Hex­ter, a di­rec­tor of Coop­erAitken of Mata­mata and Mor­rinsville, said with the pay­out fore­cast down $1.40/kg milk­solids on last sea­son, it is im­por­tant for farm­ers to bud­get, plan and mon­i­tor this sea­son, and to work closely with their ac­coun­tant, bank man­ager and farm ad­vi­sor. In pre­sen­ta­tions to farm­ers, Coop­erAitken has warned that on 100,000kg of milk­solids, pay­out in­come this sea­son for a farm owner will drop by $187,000. Talk­ing to your ac­coun­tant about this sea­son’s tax needs is a good start, Hex­ter said. Tax obli­ga­tions will be dif­fer­ent to last sea­son and sign­ing up for the gov­ern­ment’s in­come equal­i­sa­tion de­posit scheme to av­er­age out tax pay­ments could be help­ful. ‘‘It’s re­ally im­por­tant to do a bud­get. ‘‘They need to un­der­stand the im­pact on the to­tal busi­ness of a lower pay­out.’’ Ad­vances this sea­son will be lower at $3.85/kg. Bud­gets should be mon­i­tored monthly, he said. Farm­ers needed to un­der­stand the un­der­ly­ing dif­fer­ence be­tween a bud­get for cash­flow and plan­ning for profit. ‘‘Cre­ate a bud­get based on the fore­casted pay­out and un­der­stand the im­pli­ca­tions this has – does it af­fect your over­draft ar­range­ment, does it pro­duce the re­sult you want, and will you have enough per­sonal draw­ings?

‘‘Test the volatil­ity. What hap­pens if feed costs or in­ter­est rates go up? If this sea­son’s weather af­fects pro­duc­tion? Know in ad­vance where the sen­si­tiv­i­ties are and share this with your bank, ac­coun­tant and farm ad­vi­sor.’’ Cash­flow should be tracked month on month to see where the cash is go­ing. If the plan shows any is­sues, Hex­ter ad­vises dis­cussing early with the bank. ‘‘Chal­lenge your­self to get a bet­ter re­sult. Look for ar­eas of im­prove­ment in your bud­get.’’

Hex­ter said ac­cord­ing to Coop­erAitken fig­ures for 2011, in­ter­est rate pay­ments com­prised about 21 per cent of to­tal farm ex­penses. Feed costs were 18 per cent and fer­tiliser 8 per cent. Farm­ers need to recog­nise feed costs are climb­ing reg­u­larly, he said. ‘‘They need to think about re­turn on in­vest­ment. Look at the price of feed. I saw farm­ers at Fiel­d­ays for­ward book­ing feed, though I wouldn’t say for­ward book all feed in ad­vance. It’s also about be­ing aware what you should be pay­ing for feed.’’ On fer­tiliser costs, Hex­ter rec­om­mended soil test­ing first, to es­tab­lish if fer­tiliser was needed. In­de­pen­dent ad­vice and soft­ware pro­grammes could help here. Sit­ting down reg­u­larly with the bank was also ad­vis­able. It could im­prove a farmer’s po­si­tion in the eye of the bank, and get debt paid down more quickly. Bankers like con­stant in­for­ma­tion, not sur­prises, Hex­ter said. ‘‘Look at ev­ery ex­pense, line by line. Find ef­fi­cien­cies, sell off in­ef­fi­cient ma­chin­ery, look at graz­ing costs and ar­eas like leas­ing or buy­ing bulls. Look af­ter staff. The av­er­age stay by a worker on a farm is 1.6 years. Train them, your labour will help you save money too.’’ Con­sid­er­a­tion should be given to de­lay­ing spend­ing on cap­i­tal as­sets, and re­pairs and main­te­nance. Mon­i­tor­ing costs against in­dus­try av­er­ages was also good ad­vice. Last year an­i­mal health costs per dairy cow were $98, up from $77 in 2009, Hex­ter said. ‘‘I have clients whose an­i­mal health ex­penses range from $40 to $130 per cow. This is an area that can be looked at.’’ Other tools for suc­cess­ful farm­ing in tight cash­flow times were find­ing ways to grow in­come and in­crease pro­duc­tion per cow. Fuel re­bates were avail­able to farm­ers. Scrap steel around the farm could be sold, along with ex­cess as­sets such as spare trac­tors, and beach houses and cot­tages could be rented out for ex­tra in­come. Hex­ter re­minded farm­ers that in­ter­est is payable on shares bought from Fon­terra un­der de­ferred pay­ment. ‘‘And make sure if you buy ex­tra shares to do the pro­duc­tion.’’ He urged farm­ers to keep a close eye on per­sonal spend­ing, which could eas­ily blow out. ‘‘Work out what you need to live on.’’ Hex­ter said he was pos­i­tive about the dairy in­dus­try’s prospects and ‘‘things can change very quickly’’ for the bet­ter in terms of pay­out. ‘‘But bud­get­ing and plan­ning is just good prac­tice.’’ Source: Coop­erAitken Ac­coun­tants

PLAN AHEAD: That’s the word from farm ad­vis­ers.

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