Drought reserve: farmers set aside $7.1B as El Nino looms

Farm Management Deposits have surged to $7.1 billion, as farmers prepare for dry times ahead.

Surging 2022-23 milk prices led the nation’s dairy farmers to lodge $413 million into their farm management deposits.

Cash has flooded into farm management deposits in the lead-up to June 30, reaching a record $7.1 billion across 47,668 accounts – to average $149,127.

Victorian farmers hold the largest share of FMDs, with $1.75 billion in their 12,984 accounts, followed by 12,204 NSW farmers with $1.63 billion and 9229 Queenslanders with $1.5 billion.

South Australian grain growers led the sector, depositing $402 million in their FMD accounts, after earning $4.6 billion at the farm gate on a record crop.

The surge in 2022-23 milk prices also pushed up the nation’s dairy farmer deposits by 13.6 per cent to $413m, compared to June last year.

But while many farmers enjoyed a bumper season and commodity prices, overall FMD deposits only rose 5 per cent compared to the previous financial year.

FMDs allow farmers to set aside pre-tax income in good years, which is only taxed when withdrawn in future years - usually during commodity slumps and droughts.

The Bureau of Meterology has forecasting drier conditions in spring as an El Nino develoops in the Pacific and a strong positive Indian Ocean Diplole takes hold.

Quambatook grain grower Brett Hosking said the extension of the instant asset write-off provisions into 2022-23, had diverted money away from FMDs, as farmers invested in sheds, silos and machinery instead.

Minyip grain grower Ryan Milgate said the family had put some money into FMDs as part of their succession plan in the past, but in the lead-up to June 30 had used the instant tax write-off provision to plough funds back into the business.