LAMB returns are on an upward trajectory and those in the finance game are seeing this convert to capital expenditure as confidence in the industry grows.
Rural Bank’s head of sales agribusiness for Australia, Simon Dundon, said figures produced by the bank’s specialist insight division, Ag Answers, had shown ongoing increases in return per dry sheep equivalent (DSE). Returns had lifted from $21/DSE in the 2012-13 financial year to $29/DSE in 2014-15 and was expected to be higher again for 2015-16.
“It’s certainly on an upward trend and when you multiply it across the numbers of DSE the average producer is running, the increase adds up quickly,” Mr Dundon said.
This was an important part of the confidence equation surrounding lamb right now.
“The good thing is we’re probably seeing people pay back a bit of debt from cash flow as well. It’s a good sign.”
He said the industry was seeing a serious turn around in debt levels, varying only slightly from region to region due to seasonal fluctuations.
He was also seeing a swing into spending on replacement ewes and sires and expected producers’ spending on infrastructure to increase as they moved to manage their tax position, which would include more money placed into farm management deposits (FMDs).
“Over the past 10 to 15 years we’ve seen pretty consistent growth in FMDs from a national perspective and certainly in the sheep meat and lamb area we’re seeing more money going back into that as a tax vehicle,” he said.
“Because the maximum (allowable amount for a FMD) is lifting from $400,000 to $800,000 per individual, I think you’ll see a fair take-up in that,” he said, adding that accountants were advising clients this year to bring forward capital improvements.
However, he reminded producers to consider how they structured their finance.
“If you’re just having a good year and you go out and spend from cash flow, from a banking perspective it’s probably not the best structure,” he said.
He suggested producers plan their spending across a longer period.
“That’s not to say you shouldn’t want to pay debt back or have the flexibility that you can pay it off any time, but it sometimes worries me in good years that people go out and spend the money without actually thinking about how to structure their finances.”
He said this could mean either borrowing the capital, or putting money into an FMD to fund a longer term plan and potentially meant seeking advice from a bank or financial planner.
Spending reveals bullish outlook
THE prime lamb industry is oozing confidence, says Rabobank central NSW regional manager Peter Anderson.
“We’re certainly seeing people keen to re-invest now they’re making money,” he said.
He said many producers were transitioning from the initial couple of years of good prices, which they used to reduce debt, to planning re-investment in their businesses.
“There doesn’t seem to be at the moment that focus on debt – it tends to be ‘we’re making money, we’re going to re-invest and do some tax planning’.”
Stronger property prices were also helping farmers’ financial situations.
“We’ve seen unusual proportions of our loan facilities at historically high levels, so obviously people are making money and it’s setting off their debt – it’s not necessarily a permanent repayment, it’s just increasing their available funds,” he explained.
“In the June gone by, we saw record equipment finance contracts settled and if it wasn’t the highest uptake of FMDs (farm management deposits) it was the second highest.”
“I think those two things together are saying people are confident, they’re buying gear and they’re putting dough into FMDs.”
