The National Australia Bank (NAB) says farm management deposits are on track to again smash the past year’s record as producers better manage their finances in good years to prepare for the more challenging ones ahead.
There is every chance the national farm management deposit (FMD) balance will break $6 billion next month, according to NAB agribusiness general manager, Khan Horne.
That would be almost $1b more in FMD savings than a year ago.
He said many producers were salting away extra funds after a couple of strong years, the recent record-sized winter grain harvest and high cattle prices.
Generally good seasonal conditions in most areas were also underpinning farmers’ savings decisions.
This financial year has also seen new FMD scheme rules allowing banks to offer FMD offset accounts, giving eligible primary producers the chance to use their FMD balance to offset interest payable on farm loans with the same financial institution.
To date, Rural Bank has been the only lender to offer an FMD offset product, which works in the same way as homeowner savings generate interest to help pay down an aligned residential mortgage account.
FMDs allow eligible producers to set aside up to $800,000 in pre-tax income in good years, which is then available to draw on in the future when they need it.
The end of the tax year traditionally sees a spike in deposits during May and June, with last year’s June total reaching $5.06b.
Rural Bank chief financial officer, Will Rayner, said innovative financial solutions such as FMDs were an important means of giving farmers support and greater control of their finances.
“Australia has virtually OECD’s lowest level of farmer policy assistance, at three per cent of national gross farm receipts - well below the OECD and EUs average (about 20pc), and the US and Canada about 10pc,” he said.
“It’s appropriate policy makers and the farm sector consider ways to back innovation and assist farmers to overcome income volatility.”
“While our farmers are some of the most innovative and resilient farmers in the world, they rely on financial innovation and partnerships.
Elders financial services general manager Liz Ryan, said Rural Bank’s new offset account generously worked in favour of primary producers, “which may be why the big banks are yet to offer a similar product”.
“Rural Bank’s decision to be the first and (so far) only bank to offer the FMD offset account is a brave, and I think inspired, move,” she said.
“It potential allows individual producers to significantly reduce interest costs on farm debt, which naturally, can also mean less revenue for the bank.”
NAB’s Mr Horne said FMDs generally provided farmers with greater flexibility to manage cash flow and navigate some of agriculture’s market-driven cycles.
“There’s a lot of grain still sitting in silos and on-farm, particularly in Western Australia, given prices aren’t as high as many would like,” he said.
“Growers with FMDs to draw on have more options to hold onto their grain until the market rises, and still have cash flow to manage their business and plant this year’s crop.
He noted after last year’s FMDs hit their record $5.06b, savings levels dropped considerably to $4.29b in the following 11 months as producers utilised their reserves.
“The dairy industry in recent years has also highlighted the benefits of having reserves.
“While FMD levels haven’t been as high in the dairy sector, some of our customers who have them are coping much better with the drop in farm gate prices.”
Mr Horne said agriculture was considered by some as enjoying a ‘golden age’ at present.
“A lot more producers are taking advantage of FMDs to put aside cash when they have it.”