The latest Agfirst farm financial survey for Central North Island sheep and beef hill country properties indicates a drop from the previous year’s profits.
The survey bases its forecasts and costs on a model farm, representing 1600 farms across the central North Island including Waikato, Waitomo, Ruapehu, Whanganui, Rangitikei and Stratford Districts.
But despite profits being at historically high levels Agfirst agribusiness consultant Steven Howarth said farms appear to be only just keeping pace with depreciation and re-investment demands with little left for impending compliance and environmental demands.
Many farms in the catchment face the Waikato Regional Council’s Plan Change 1 which limits nitrogen applications, stocking levels and requires greater levels of fencing around waterways.
The farm profit for this year is estimated to be $104,000 down from $126,000 for 2018-19.
Farmers are forecast to be able to continue to make debt repayments of $24,000, the same as last season, reducing average farm debt to about $1.6 million.
“That represents a repayment rate that is half the amount needed to repay a 20-year mortgage.”
While still at historically high levels, the drop in farm profit this season is attributed to a fall in lambing percentages and expectations there will be a slight cut in lamb returns.
Meantime, that drop is slightly offset by a lift in cattle income while wool returns continue to languish, down 3%.
Higher minimum wages account for the largest percentage of a 9% costs increase along with fertiliser costs rising 5%.
Agfirst expects to see hill country farm repairs and maintenance costs actually drop by 7%, thanks to farmers largely catching up over the past four years on deferred maintenance.
Howarth said the level of uncertainty over how greenhouse gas rules will play out is a cause for concern as is the number of farms being sold for forestry though those sales are helping keep farm balance sheets looking healthy.
Average farm land values are estimated to lift from $4.8 million ($8406 a hectare) in 2018-19 to $4.893m ($8570/ha) for this year, partly in response to strong demand for land for forestry.
That contrasts with dairy land, expect to fall 10% this season.
Sheep-beef farmers also sit in a more comfortable debt to asset position compared to their dairy farmers, at 28% debt-assets, compared to 40% for the model dairy farm.
Agfirst partner James Allen said the relatively positive returns in both sectors are not reflected in farmer sentiment.
“That is particularly the case with dairying.
“What is bringing everyone down? It is compliance creating uncertainty, perceptions of the sectors and, for dairying, the balance sheet has taken a bit of a hit.”
However, he maintains the top 25% of farmers can cope with the demands of compliance and lower carbon outputs and are well placed to benefit strongly from opportunities.
“We are seeing land prices lower in some cases. It’s harder on balance sheets but is also creating opportunities for younger farmers. The same applies to the lower Fonterra share price.”
He urged rural professionals including advisers to work hard with their clients to identify where the opportunities lie in coming years, with many of the changes on the doorstep rather than the horizon.
