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2014 - A Year of Contrasting Fortunes

With Christmas just around the corner it is time to reflect on another year which seems to have come and gone very quickly. And how the fortunes have changed for our regions farmers over the past twelve months. The start of the year saw dairy prices at all time highs with Fonterra forecasting an $8.30 payout (which ended up even higher), beef prices remained flat at $4 and lambs were averaging $90.

Since then the demand for sheep and beef, particularly from the United States has resulted in export beef prices hitting their highest levels in twelve years. Lamb prices are around $100 and wool prices have also increased. Sheep and beef farmers are heading into 2015 with renewed optimism. On the downside, the dairy sector has seen a swing of fortunes that no one really predicted. Key economies like China and Russia have stopped buying with the milk payout plummeting to below $5. Volatility continues to plague the dairy sector which makes forecasting and budgeting extremely difficult.

Farming Feature - Oct 2014

Outlook Positive for Sheep & Beef Farmers

Record prices for beef, improved lamb price forecasts and a kind winter and early spring have Waikato and King Country drystock farmers well placed for the season ahead. Beef prices have been rising for five consecutive months and are now at record highs - currently up 41% since April. Beef and Lamb New Zealand's new season outlook is forecasting lamb prices to lift 5% to an average of $103, up from last season's $98, while wool prices have lifted between 50 cents and $1 per kilo in the last twelve months.

Beef prices in particular have been driven by huge demand out of the United States where farmers have come through two droughts and cattle numbers have dropped. Elsewhere in the world the demand for protein continues to increase. In addition the weakening New Zealand dollar is helping our farmers with the US dollar trading at 77 cents, down from 88 cents in July.

North King Country Farmer - Aug 14

Keep a Close Eye on the Finances

The drop in the forecast dairy payout means that farmers are going to need to look at their finances even more closely over the coming season. Cash flow forecasts need to be updated at a milk price of $6 per kilo which is a drop of over $2 from last season. This will have a significant effect on farmers spending and will have a flow on effect for service providers and retailers in rural areas.

2014 Farmers Party

Bailey Ingham organise the annual Farmers party. Photos from the 2014 event:

Waitomo News - Record Keeping - May 2014

Employers: Is Your Record Keeping Up To Scratch?

Many farmers would be aware of the action that has been taking place in the dairy sector focusing on employer maintenance of accurate time and wage records by the Ministry of Business, Innovation and Employment's (MBIE) Labour Inspectorate. Between December 2013 and April 2014 the Labour Inspectorate (previously known as the Department of Labour) visited 44 farms finding that 33 were in breach of employment laws. The Ministry has been taking action against farmers that are not complying with the legal requirements with non-compliance attracting fines of up to $10,000 for an individual and $20,000 for a company. Most of the breaches relate to insufficient record keeping and breaches of the minimum wage. It has become clear that this is an area that many farmers need to improve on and the start of the new season is a good time to make this happen.

North King Country Farmer November 2013

Taxing Times Ahead for Dairy Farmers

The higher dairy payout brought about by an improvement in commodity prices and general economic conditions has been good news for the economy and particularly dairy farmers who will have higher incomes in the current season. While each taxpayer’s position is different, in general most dairy farmers will need to start thinking about provisional tax and acting accordingly to ensure that they don’t end up with a large debt owing to the Inland Revenue Department as well as costly Use of Money Interest charges.

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:

Waitomo News - Trusts - April 2014

Be Aware of your Responsibilities as a Trustee

As accountants we are often asked to give advice on business structures, including family trusts. Trusts continue to be very popular in New Zealand where it is estimated that there are between 300,000 and 500,000 in existence. The exact number is unknown, because unlike companies, there is no central register of trusts. Many trusts simply exist to own the family home and where they have no taxable income, they do not need to register with the Inland Revenue Department.

While there is no standard definition of a trust the most common way of describing how a trust works is that a trust is a relationship between trustees (in whose name property is held or dealt with) and people called beneficiaries who are intended to enjoy the benefits of that property.

Individuals, business people and farm owners form trusts for various reasons including asset protection, provision for family members, farm succession, ease of management, and the ability to appoint trustees to assist with decision making, to name a few. Trusts may also provide tax advantages but recent changes to tax law have reduced some of these.

In general trusts work very well but it is very important to consider the responsibilities of being a trustee. This article briefly looks at some of these.

Waitomo News - Tax - July 2014

Is Tax Really a Burden for your Farming Business?

Rural accountants across the country will have their hands full over the next six months dealing with their dairy farming clients' high levels of income for the season just completed. There will be some dairy farmers particularly in the Waikato thatsuffered from the drought; however with the record payout level most will still show excellent surpluses. What this generally means for dairy farming businesses is a hefty tax bill.

As accountants, one of the main reasons we are employed is to help our clients minimise their taxation obligations. Generally we do this through structuring our client's affairs carefully and claiming the maximum amount of deductions available.

At the end of the day if your business is making good levels of profit then you will also be paying tax. Unless you have substantial tax losses or have a high amount of off farm income, the only way your business will grow is by making good profits, paying the right amount of tax, reinvesting the after-tax profits and keeping your personal expenses to a reasonable level. From our experience this is one of the keys to a successful farm business.

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