FARM FINANCE

Taranaki Daily News, 8 September 1934, Page 24 (Supplement)

FARM FINANCE

IMPORTANCE OF BUDGETING

REVENUE AND EXPENDITURE.

The important matter of farm finance was the subject of a lecture given by Mr. Eric Russell, chairman of, the Mortgagors’ Adjustment' Commission, Southland, at one of the sessions of the Young Farmers School held in Invercargill last week. The gathering was attended by oyer 70 young Southland farmers. The farmers of Taranaki as a whole are keenly alive to the necessity for increasing production, as is shown by the interest taken in the farmers’ field competitions, and the field days in connection with them, also in herd testing. They are becoming more proficient in farm practice, but generally they do not study the financial side closely enough to know whether their farm practice is economical or not. As regards finance generally they know only that their monthly cheque is usually far too small In introducing his subject, Mr. Russell said that while the productive aspect of farming operations was of paramount importance, so it was also essential that a farmer should keep a record of the various items of revenue and expenditure. He should have a clear idea of his programme for the year and be in a position to budget (subject to market fluctuations) as to his expenditure and revenue. After making adequate provision for working and living expenses including depreciation on plant, the excess of revenue over expenditure represented what was ■ available for payment of interest. That amount capitalised on a basis of 5 per cent., gave a fair indication as to the value of the land, assuming always that the land was being worked to the best Mr. Russell said that a necessary book to keep was a ledger with a separate folio for each heading under which the various items of income and expenditure should be recorded. The speaker then illustrated his remarks by taking a sample budget for a 100-acre dairy farm with a carrying capacity of 35 cows and necessary young stock for replacement and 30 ewes. The budget was prepared on the assumption of 9Jd per lb. with an average production of 2651 b. of fat, which was in accordance with the results of the Southland Herd-Testing Association, though, in his opinion, those figures would be found considerably above the average obtained throughout the district. In reviewing the items of expenditure, Mr. Russell emphasised the necessity for adequate expenditure on manures and top-dressing if the butterfat production was to be maintained. Provision .had to be made for contingencies in a budget, the figures for which might vary from year to year.

Mr. Russell confessed that the amount allowed, in the budget for living expenses represented a fairly low standard of living, while the allowances for repairs and depreciation were if anything inadequate, but the arresting feature of the budget as it stood was that it showed only £BO available for interest payments. That amount, capitalised on a basis of 5 per cent., represented a capital value of £1,600 or £l6 an acre. It could be seen that if larger amounts were allowed for living expenses, repairs and contingencies there would be practically no surplus to meet interest payments. On the basis, above outlined every penny a pound increase in the price of butterfat meant an increase in revenue of £3B 13s whfch capitalised worked out at £773 or £7 14s an acre. Assuming that the butterfat production averaged 2301 b. a decrease on the revenue side of £4B 9s resulted and a correspondingly less amount was available for interest.

Mr. Russell next referred to the case of a sheep farm of 400 acres carrying 1000 ewes. The chief sources of revenue would be the sale of fat lambs and wool. A lambing percentage of 110 represented 1100 lambs. Deducting 250 ewe lambs to go into the flock there would be available for sale, say, 850 lambs and 250 cast, ewes (less death rate). At present it seemed reasonable to budget £1 2s for a i lamb and, say, 10s for a cast ewe and 4s for a ewe for wool. After adequate allowance for living jand working expenses there should Be a surplus in the vicinity of £340 available for payment of interest, representing a capitalised value of the farm of £6,800 which, on 400 acres, worked out at £l7 an acre. As the carrying capacity was 1000 ewes and the value of the land £6,800 it would be seen that a rough and ready way of estimating an approximate value of the farm was to put an index figure of £6 16s on the ewe. If by the nature of the farm it was a store lamb proposition as distinguished from a farm where the lambs went off fat, an adjustment would be 1 required in the index figure. “Every farmer, if he hopes to be successful, should work out a programme of wqrk and a budget at the beginning of each year. Often nowadays the trouble is that a great number of farmers have only the haziest idea of their own affairs,” Mr. Russell said. “I realise that the values on which a farmer bases his budget may fluctuate and that all kinds of contingencies may arise, but he must be able to check up his position for each season.