Farm management deposits peak expected this June
On the back of a profitable year for farmers, banks expect FMD holdings to swell as the national cashflow-levelling scheme comes under a federal review.
The national balance of farm management deposits is sitting at $5.26bn, with financial institutions predicting June contributions will be significantly up compared to last year, buoyed by the recent bumper grain harvest and strong seasonal conditions.
Commonwealth Bank general manager of agribusiness Tim Harvey said FMD accounts allowed farmers to put aside cash in good years and draw down in tougher seasons, to flatten volatile cash flow.
“We are expecting to see strong growth in farm management deposits over the next few months, off the back of very positive seasonal conditions and overall profitability across the industry this financial year,” Mr Harvey said.
Traditionally, deposits peak in June every year, when primary producers assess income to maximise tax efficiency.
In June 2019, FMD holdings hit a peak of $6.76bn before drought hit the southeast states and triggered a significant drawdown.
June 2020 was the first time the end-of-financial-year peak did not exceed the previous year, with national holdings hitting $6.49bn.
Rural Bank chief operating officer Will Rayner said trends showed primary producers were using FMD accounts as a prudent financial management tool.
“There is no doubt that FMDs are an important tool for farmers,” he said. “There are no clear trends by a particular state, except to say that the popularity of FMDs continues to grow and reflects the important role they play in enabling the management of volatile cashflows experienced in primary production.”
The level of current deposits is in line with March 2018, when there were 49,469 accounts totalling $5.22bn, and grain growers represented the largest slice with 8425 accounts worth $1.09bn. Beef producers followed a distant second, with $825m lodged in 8199 accounts.
Today, there are just 44,036 accounts, with a total of $5.26bn in holdings.
Beef producers have increased their holdings compared with three years ago, with $894m in 7496 accounts. Grain growers had lodged $995m in 7198 accounts as of March 31 this year.
Victoria bucked the national drawdown trend last June as the state with the greatest year-on-year value increase, jumping from $1.38bn in June 2019 to $1.52bn in June 2020.
The Department of Agriculture, Water and Environment is currently reviewing the FMD scheme, to assess if it is helping farmers become more financially self-reliant in lean years, or just being used for tax purposes.
Individuals are allowed to deposit up to $800,000 of pre-tax income a year in FMD accounts.
The funds can be drawn down in low-income years to help with costs, such as restocking or resowing.
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