Farm management deposits withdrawn by producers to spend on operations
Beef cattle producers have made record farm management deposits. But only it and one other commodity have bucked a broader trend.
The nation’s farmers have withdrawn more of their farm management deposits in 2020-21 than previous years, despite the agricultural economy going through a purple patch.
Figures collected by the Federal Agriculture Department show farmers withdrew $1.223 billion in the 10 months to April this year, before depositing $936 million into FMD accounts in May and June.
The traditional June peak saw total deposits held nationally at June 30 top nearly $6.2 billion, considerably less than the $6.5 billion peak in 2019-20 and the record of $6.8 billion in 2018-19.
FMDs are a tool whereby farmers can park their income from one financial year and pay tax in a future year when it is withdrawn.
FMD levels peak every year in June as farmers assess their potential taxation liabilities prior to June 30 to smooth out their taxable income.
They generally plummet in July, by varying degrees, and continue to gradually decline over the next 9-10 months.
In July, last year, farmers pulled out $966 million after depositing $926 million the previous month.
Rural Bank head of insights, products and pricing Greg Roberts said the smaller FMD peak in 2020-21 was probably a function of a number of factors, including the declining gap between what they earn from bank interest rates on their deposits and the alternative of term deposits.
Mr Roberts said other asset classes were also offering good alternative returns.
He said the Australian Securities Exchange indices were 24 per cent higher, farmland properties were 12-13 per cent higher and the residential property market was booming.
He said grain growers, particularly in NSW, were probably withdrawing funds to recover from the recent drought, while others were possibly renewing farm machinery.
Mr Roberts said the beef and dairy producers “bucked the trend”, with both posting record FMD peaks on June 30.
Cattle producers stacked away a record $1.066 billion by June 30 this year.
Victorian Farmers Federation livestock president Steven Harrison said that was not surprising, particularly for the state’s producers.
Mr Harrison said Victorian cattle producers bought in cattle from drought-affected NSW farms when the autumn break occurred early this year.
He said good cattle prices this year meant their returns were higher than budgeted.
“All of a sudden there is a surplus of money to be dealt with come June 30,” he said.
Dairy farmers also reached their highest deposits on record in June this year — $334 million.
That surpassed the previous record of $308 million sent in June, 2015.
Grain growers continue to be the biggest users of FMDs, with $1.195 billion deposited by June 30.
This is well below the peak of $1.479 billion set in June, 2019.
FMD levels held by grain growers are the lowest in five years.
Farmers who were both grain and pastoral farmers were traditionally the biggest users of FMDs.
They had $1.289 billion lodged in deposits at June 30, this year, about 25 per cent lower than the record of $1.598 billion set in June, 2019.
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