OPINION: The current big three economic effects on farming

Paul Kerins, partner, accounting and business advisory.

OPINION

We hear a lot in the media about interest rates, what the OCR is doing, poor mutton and lamb prices and to top it off, the East Coast - if it hasn’t been through enough - is now in for a drought. Seemingly, not a lot of great news here for the farming community.

Let’s break it down, starting with interest rates.

As the OCR has increased, so have interest rates, to a point where some are now over 10 per cent. Despite being told rates would start to decrease towards the end of 2023, it’s looking to be another 12 to 15 months before we start to see any downward movement.

This can feel overwhelming to plan for. It’s essential you speak to your banker or lending specialist and discuss the options they have available to help support you.

Next, the fall of mutton and lamb prices.

We have seen a huge fall in both mutton and lamb prices, from $9/kg to around $7/kg. This can be mostly explained through what is happening in China. Lamb consumption in China hasn’t taken off post-Covid, which has left high levels of inventory, which will inevitably take some time to work through.

As the China market starts to regain confidence and spend more, demand will pick up again and with it, prices. Until around mid-2024, we will continue to see some short-term pain with lamb prices but they should start to ease by then.

Let’s talk about the weather.

The threat of El Nino (dry and hot weather) has been forecast for this season and has a lot of farmers on edge. But recently, we have had good rainfall, which is helping with crop growth and quality, and the forecast is for some fine, warm weather to help with grass growth.

It might pay to think about what you’ve got on the farm and whether it’s kill weight. If it is, an option might be to get it killed and ensure you’ve got that money in the bank, as it can go very quickly as the weather gets drier.

In summary, due to external factors that are out of your control, farming profits are set to reduce for the 2024 tax year. So, if you are in the process of completing your 2023 financial statements with a good profit, you may want to consider any tax savings you’ll gain if you transfer some of that profit to FY2024. It would be wise, also, to keep in mind the ongoing expenses of repairing damage from the cyclone, and in the same sense, any support packages still available with your bank for those who have incurred more than a 20 per cent income loss/expenditure increase.

You can easily talk to your accountant about these options, and they can guide you in the best way. Contact our team of specialists at findex.co.nz to help you work through this process.