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Escalating costs over the past six months have affected farming profits and that’s likely just a taster. Agricultural businesses now face a full 12 months of high prices for the likes of fuel, feed, freight and fertiliser, not to mention rising interest rates and inflation – and no way of knowing how bad things might get.
“We haven’t seen the full impact of those costs yet because expenses have only been increasing significantly over the past six months,” says Baker Tilly Staples Rodway Taranaki rural advisor Amanda Burling.
She says if you're in agriculture, it’s important to get to grips with your financial position, considering everything that applies to your business, from break-even milk prices, to pasture and feed requirements, to labour shortages.
“It’s not necessarily just labour shortages, but the pressure to pay a really good wage to secure your people, or at least provide decent housing, otherwise you’re generally expecting people to travel and they’re not going to travel if the fuel costs too much,” says Amanda.
In the dairy industry, farmers have seen the 2022 forecast Farmgate Milk Price of $9.60 revised back to $9.30. The 2023 season has a mid-range forecast of $9.00, but that will be offset by the additional expenses that have affected farming profits over the past six months, she says.
“It’s still a really good milk payout, but we’re expecting those other costs to come up anything from $0.70 to $1.00 per kg of production, so if you do 100,000 solids, that’s $70,000 to $100,000 of additional costs just in farm working expenses. It is going to hurt.
“The current environment is quite volatile… so our approach to that is going to be, know your financial position and keep an eye on it, and then you can establish goals for the year ahead and make timely decisions,” she says.
“Now, when it’s not as busy on the farm, is a prime time to be nailing down a forecast for the year. Instead of thinking at the end of the season, ‘we haven’t done very well’, you can assess every couple of months and go, ‘right we’re not tracking where we want to be – what can we do?’.”
If you’re in agri-business we know you’re busy and budgeting may not be a top priority – or maybe you track the business’s performance in your head.
But COVID-19, the war in Ukraine, increased interest rates, rising inflation and other instabilities have made it doubly important to know your financial position and have an up-to-date forecast.
“For example, an increased interest rate of two percent might double your interest bill, and it’s got the potential to unravel your business, so you’ve got to take pre-emptive steps to avoid that,” says Amanda.
Our agri-business teams can tailor software solutions to your farm, giving you an accurate and up-to-date view of your current position.
You create your forecast at the start of the year and as you update it every couple of months (in line with GST works well), the software overwrites your previous forecast with actual data, so you’ll always have a current forecast closing position, she says.
We can also support decision-making strategy around implementation of new agri-tech to create efficiencies for your farming systems.
Our agri-business advisors understand the pressures you’re facing. We know working in your industry can be demanding and at times demoralising, and we’re here to assist. When you’ve got goals or problems to overcome, we can help you break them down into achievable stages and build your overall resilience.
“A forecast or a budget is a plan to get through the year – it’s a plan to overcome adversity or challenges and it’s a plan to succeed in the future,” says Amanda. “If you have goals but can’t see how to get there, we can help you – wherever you live in New Zealand.”
For more details or to book an appointment, contact her on email@example.com or 027 674 0471, or talk to your usual Baker Tilly Staples Rodway agri-business advisor.
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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