...helping you work on your business, not in your business

LET’S GET THAT CRYSTAL BALL OUT AND GIVE IT A POLISH!  
       
It was not that long ago we had a meat schedule high of $5 and a dairy payout of $3.90.  I sent out a message asking you all to look over the fence and check on your neighbours.  Times were horrid.   Fortunately the tide turned and the last few years have seen some wonderful financial returns for the agri industry. Now we have daily messages of doom and gloom as we are constantly reminded with news of Ukraine, inflation, interest rate increases and let’s not forget the dreaded COVID peaks and troughs.  I’m starting to get nervous again.
 
During the years of great financial returns everyone completed some long overdue maintenance and farm sales have become actual.  Businesses are getting back on their feet.  Banks are lending – but for how long I wonder…

The real reason for this heads up is to bring you all back to the present.  Inflation is the hot topic and combined with another increase in the minimum wage rate, everyone is getting pinched.  The challenge with a high payout milk or meat schedule is to ensure that some of that return stays in your pocket for the next rainy day.

One article I have read has said many key farm inputs have increased by more than 10% in the last three years.  Fertiliser 15.9%, electricity 21%, grazing 36.9% and stockfood 18.9%.  Add to this the minimum wage, fuel and insurance premium increases.  Inflation adjusted milk payouts have this sitting at around $7 before this last year at $8.32 as per NZAB.

Predictions so far for 2023 payouts are high.   Demand for food is high but production issues are also high.

So what is my point?  You need to make sure you can pivot fast if and when income levels decline. Forecasting has low priority in times of good returns.  There is always another job to do. 

Over the last few years banks have reviewed peoples finance and tried to reduce lending facilities.  For many years loans were interest only; debt repayments were a thing of the past.  Not now.   Farm values have increased and so too has equity.   Hopefully during this time people got a “few runs on the board” to show how financially wonderful they are.   Should our markets become soft, are you in a position of knowing your costs and able to confidently discuss your financial history with the lenders?  Having your forecasts up to date and in action will go a long way to supporting this.

This is not a marketing spin.  It’s just a heads up.  Many of you have the tools at hand whether it be Figured, Rural Focus, Xero or even the trusty scrap of paper.  It doesn’t matter what it is, just do it.  A lot of financial stress is avoided if you are aware of the potential future result.

And just to cement in the issue – everyone is paying tax.  While returns are high, so is the grim reaper of the IRD payments.  Having forecasts in place allows tax to be reviewed seamlessly if returns fluctuate.

So just get on with it and if you need assistance – just ask.