Here’s what to factor in for your on-farm budget

Two weeks ago, we wrote about the importance of agriculturalists knowing their financial position, ready for what could be a bumpy ride through the 2023 season. Today, Baker Tilly Staples Rodway Taranaki Business Advisory Services associate Kylie Filbee-Cronin looks at the rising costs in more depth to help with your budgeting.

Time to read: 3 mins

By now, farmers will be feeling the pressure of price increases, not just from inflation but also supply availability. The tried-and-true method of copying last year’s actual results to create the following season’s budget simply will not work this year, and farmers who have taken this approach will be caught short. Make sure you aren’t underestimating your overdraft demands for the season by reading our top 2023 budgeting tips below.

Cost increases

  • Fuel prices have risen by more than 37% in the past 12 months (using interest.co.nz U91 rates). It’s important to budget for increases rather than copying over last year’s vehicle expenses as a base for FY23.
  • Grain is almost inaccessible at the moment, and all other available feed is at a premium. We have seen feed prices rising by more than 50% in some cases, and with the conflict still raging in Ukraine, they will most likely remain volatile.
  • Has your fertiliser company sent an email recently with their updated pricing? Consider if you can substitute products or be more selective in your applications. Have you thought about soil mapping to target your fertiliser applications and reduce wastage?
  • Wage expectations are on the rise and with labour shortages within the farming industry, it’s an employee’s market. Keeping up with inflation alone will be costly for 2023, especially if you want to retain good staff

Milk Price

Fonterra has come out of the gate with a $9.00 mid-point, quickly lifting to $9.50, NZX Futures is suggesting $10 and higher, and the banks are remaining more conservative at around $9.00. Who is right? Cyclical history would tell us we are over the hill and on the way down, but the market continues to suggest otherwise. If you want some certainty around milk price, it might be time to explore ways to lock it in, using hedging tools such as Fixed Milk Price and Milk Futures.

Interest costs

The 30-day bank bill rate is seven times higher than it was in September 2021. Our team has a wide understanding of how this is applied to your farm’s interest rate, and the key financial and non-financial drivers behind any risk margin that the bank applies to your lending. We can help you present the right information to your banking partner to ensure access to the best interest rates available to you.

Tax

With farm profits rising in the past couple of years, your tax obligations have likely also increased. Due to the change in provisional tax interest rules, you may need to allow for additional provisional tax payments.

How we can help

Make the most of your cashflow by catching up with one of our rural advisors to go through your budget. We can help with:

  • Access to a wide range of farm insights and benchmarking, to ensure you haven’t missed any key cost increases
  • Access to our HR team, with salary benchmarking for your staff, as well as recruitment services to help find new staff
  • Understanding the drivers behind your farm’s interest rates to help you put forward the best budget for your bank review
  • Tax planning to ensure you are paying the right amount of tax, on time
  • Options to smooth your cashflow with the use of tax payment spreading and debt payment planning
  • An introduction to Milk Futures and Fixed Milk Price, as well as how these will impact your cashflow and tax outcomes

If you’d like to speak to one of our advisors, get in touch with Kylie Cronin at kylie.cronin@bakertillysr.nz or give us a call on 06 757 3155.

  • Read our earlier summary about the 2023 season here.

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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