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North King Country Farmer January 2014

Make Hay While the Sun Shines

The current farming season may go down as one of the best ever in recent memory with high commodity prices and excellent weather conditions combining in what should be a bumper season for many in the agriculture sector.

When things are going so well it is easy to forget just how quickly things can change. Agricultural commodity prices tend to be very volatile and despite the fact that the products that we produce and export are of excellent quality and that the world population continues to increase (and we all need to eat!), we should always be mindful that dairy and meat prices may suddenly go out of favour almost overnight.

Other risks to the agricultural sector include increasing interest rates, increasing farmworking costs, a continuing higher dollar, environmental and climate issues and increasing overseas production.

Without trying to be too pessimistic this article attempts to reinforce the fact that it is important to build up your financial reserves now or in farming terms, make ‘hay while the sun shines’. Some things to think about:


• Focus hard on maximising the opportunities that you have now as you may not have these in the future.

• Don’t waste your money buying expensive farm machinery just because you think it might save you some money in tax.

• Get good advice from your advisors and if your advisors disagree with what you have in mind then take their points on board. Sometimes it is easier looking in from the outside from a different perspective.

• Reducing your debt is always a good way of building up your financial reserves. Not only does it make the balance sheet look good but it will take the pressure off in the future when interest rates go higher.

• Prepare cash flow forecasts as well as profit forecasts.

• Calculate your income tax position (with help from your accountant) and set aside money for tax.

• High income earners should be paying some voluntary income tax payments to the Inland Revenue Department now because income in the current financial year is likely to be significantly higher than the previous year.

• Money spent on farm development, essential repairs and maintenance, fertiliser and animal health will pay dividends in the future. Your farm and your animals are one of your major assets and these need to be nurtured and cared for.

• Utilise the Income Equalisation Fund if necessary to reduce your tax bill (your accountant will be able to assist you with this).

• Put aside some funds for a well-deserved holiday if you haven’t had one already. Long-term sustainability is key to a good farming business and that includes the owners who all need a break from time to time.

The start of the New Year is always a good time to get your financial affairs in order. Most farmers will have a very productive and profitable season but remember that things can change very quickly. The good times won’t last forever, so plan well and put aside some of those pennies for a rainy day.

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