Denis Hames, Partner and Agribusiness Specialist Findex.
The last article I wrote, in March, made mention of the changing fortunes of the farming community in Central Hawke's Bay (CHB) from three months prior to that. The drought had well and truly taken hold, killing space was tight and Covid-19 was showing signs of stabilising.
Again, in the space of just two and a half months, things have changed. We have been in various states of Covid-19 lockdown since the last week in March and the drought has continued, albeit with a little bit of rain that has caused the grass to green a bit.
Feed has been an issue for the whole of CHB, with some areas worse than others, and the baleage provided from the Wairarapa was very welcomed by farmers, who are under severe stress from watching condition on animals drop away.
In spite of that, the budgets and income estimates I have been doing show that, speaking generally, farm incomes are still expected to be quite high for the year ending June 30, 2020. This is due to a lot of stock being sold early for very good prices and livestock numbers, which were predicted to be on hand at June 30, decreasing in most cases.
With the Government announcement that CHB qualifies as a drought area, affected farmers can use the Income Equalisation Scheme to make deposits for the 2020 year and then withdraw immediately for the 2021 year. However, you must do this after June 30 so the refund comes into the 2021 tax year.
Budgets for 2021 will almost certainly see a fall in income for a variety of reasons including pricing, stock condition when lambing or calving, and decreases in lambing and calving percentages. An early estimate of projected 2021 net incomes will mean good taxation savings with the appropriate use of the Income Equalisation Scheme.
Herd Scheme livestock prices have also just been announced and values have dropped across the board.
• Sheep values have dropped between 15 per cent to 22 per cent depending on lines
• Beef cattle have dropped 14 per cent to 26 per cent
• Dairy cattle have dropped by 4 per cent to 9 per cent
• Deer have dropped by 14 per cent to 38 per cent
To better demonstrate the price impact, this represents a price reduction of:
• Ewe hoggets down from $135 to $108
• Rising two-year steers and bulls – down from $1209 to $1035
• Rising two-year stags – down from $662 to $455.
These are the first falls across the board for some time, therefore accountants across the country will be looking at opportunities to move livestock from National Standard Cost to Herd Scheme where appropriate. It may also mean some tax planning opportunities at the year's end to decrease 2020 farm incomes.
• The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex NZ Limited.
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