Taking advantage of wool, lamb prices

Press, Volume CXII, Issue 33064, 3 November 1972, Page 12

Taking advantage of wool, lamb prices

As yet only a small proportion of farmers have benefited from the recent high prices for wool and lambs, but if these sort of prices are maintained it is most important that farmers should be carrying' out careful financial planning and control if they are to take advantage of this favourable situation.

Professor J. D. Stewart, professor of farm management at Lincoln College, was asked this week what advice he could offer to farmers in this situation.

In the first place, he said that farmers should realise that they would be paying provisional tax in the 197273 financial year based on their 1971-72 incomes. Thus given a much higher actual income in 1972-73 they would then be faced with correspondingly higher provisional tax in 1973-74 and terminal tax in March, 1974, related to underpayment during 1972-73. This meant that in 1973-74 they could be caught with a massive tax bill during that year unless provision had been made, and that in a year when prices could be lower.

It was therefore important that farmers got the advice of their accountants or advisers and did some forward financial planning.

There was provision in the act for provisional tax to be revised and there was provision for funds to be allotted to the income equalisation scheme. The maximum had been 25 per cent of net farm profit, but this was to be increased to 40 per cent.

There would obviously be a tendency for fanners to utilise their buoyant incomes in 1972-73 on deductible maintenance and development items. He was concerned that these funds be spent in a rational way because sometimes there was an observable tendency for overspending on some items and a consequent imbalance in development—for example high expenditure on fertiliser without associated increases in stock, or high spending on machinery which might not be really necessary.

The use of an income equalisation reserve would

permit more balanced allocation of these funds over the next two or three years. Assuming that wool and lamb prices held into the new year, there was bound to be a very strong demand for store stock—both breeding ewes and cattle. This would be good for the store producer, who was in need of a lift, but one hoped that prices would be kept in reasonable balance in relation to the uncertain outlook for the future. For example. Professor Stewart said he thought that a reasonable guide in •> the past as to the price to pay for good four and five-year-old ewes had been the prime lamb price. While the relative effect on sheep as against cattle prices was hard to judge, he suspected that the demand for store cattle could be strongly affected by the taxation postponement that could result from the purchase of cattle and their writing down to standard values. One hoped that this would not force store cattle prices to uneconomic levels.

It was most important to bear in mind that careful budgeting and revision of budgets as sales were realised were just as important in a year such as this as in years when the financial situation was very tight Misjudgment of the financial and taxation situation could be most troublesome.

Buoyant prices should be regarded as an opportunity to strengthen the financial and economic base of a farm and this could be done by careful financial planning. On a fully developed farm, where maintenance had been kept up in recent years, there might be an opportunity for investment of funds outside the farm, which again had the effect of widening and strengthening the financial base of the farming business.