Beef takes FMDs to another record

Beef takes FMDs to another record


Beef
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Beef leads the way on FMDs, with 50pc jump in three years

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BEEF producers are driving yet another record year in farm management deposits (FMDs) on the back of ongoing solid cattle prices.

That doesn’t mean reinvestment on-farm is lagging.

In fact big agriculture lenders and farm accountant specialists believe cattle operations are achieving a healthy balance between spending to improve productivity and planning ahead to secure a buffer for tougher years.

There had been a significant shift in thinking towards longer term planning and offsetting the effects of seasons and market fluctuations, particularly with cattle returns being increasingly influenced by global markets, they said.

That “cultural change” has been reflected in FMD trends.

National Australia Bank (NAB) Agribusiness general manager Khan Horne predicts nearly a billion dollars will be added to FMD accounts nationally this financial year, to reach close to $7 billion in producers’ accounts.

In June last year, FMDs hit $6.09 billion with year-on-year growth of 17 per cent.

There has been a 50 per cent jump in funds channelled to FMDs by beef producers in the past three years, at close to half a billion dollars, NAB data shows.

National Australia Bank (NAB) Agribusiness general manager Khan Horne.

National Australia Bank (NAB) Agribusiness general manager Khan Horne.

FMDs allow eligible producers to set aside pre-tax income in good years, up to a total limit of $800,000, which is then available to draw down in future years when they need it.

Mr Horne said the beef FMD trend was the result of good returns via high cattle prices, the doubling last year of the cap per account holder and longer-term strategic thinking on the part of producers.

“I’d also take my hat off to accountants and financial advisors who have prepared people well for the changed FMD cap,” he said.

Meanwhile, there had been significant investment in everything from cattle yards, upgraded equipment and fencing to occupational, health and safety, animal husbandry and pasture improvement on beef operations during the past few years of higher returns, he said.

Victorian-based expert farm accountants Billings and Ellis said beef producers had transitioned to considering themselves business people running a farm.

Senior partner Graham Morris said producers were looking to safeguard for an increasingly unknown future, “to make yourself as strong as possible while you have opportunity.”

“Where once we might see farmers buying new cars when cattle prices are in this part of the cycle, we now see only spends on what will improve the business and saving for the future,” he said.

“In particular, there is a strong focus on sustainability from a water perspective - many of those putting money into FMDs are doing so with the view they may have to spend big in that area down the track.

“FMDs are basically buying insurance for tougher times.”

Mr Horne said the FMD result placed beef in a very optimistic position as lenders looked to these type of data points in determining credit ratings and their appetite for a particular industry.

Beef’s 50pc increase in funds in FMDs compares to an average 25pc increase for other industries.

Mixed farmers (grain, sheep and beef) added close to half a billion over the past three years to their accounts, Mr Horne said.

Queensland and NSW outperformed other states across all segments.

From here, the expectation is funds will be drawn down after the end of this tax year, as producers look to manage the current dry conditions.

However, the trend towards increased FMDs in likely to continue.

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The story Beef takes FMDs to another record first appeared on Farm Online.

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