Farmer focus on FMD investment: Rural Bank

27 May, 2010 04:00 AM
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FOOD and agribusiness specialist Rural Bank WA has predicted that more money would be invested in Farm Management Deposits (FMDs) during the April to June quarter despite the declining commodity prices in some primary industries.

A Rural Bank spokesperson described the FMD as an account available to primary producers who wanted to set aside pre-tax income from profitable years to help manage business during downturns in the agricultural industry due to climate and market factors.

Rural Bank WA manager Stephen Ward said many farmers had chosen to sell now rather than wait until low market prices for grain had improved.

In some cases the early selling of grain had inflated the normal taxable income of WA growers and lead many to take up FMDs.

Since the inception of FMDs in 1999 the strategy had become an important tool for farmers and their cash flow management.

"It allows farmers to save pre-tax income in good years for when they need it the most," Mr Ward said.

"At the end of the 2008/09 financial year more than 39,000 farmers held income in an FMD account.

"By 30 June, 2010, we expect this number to have grown even more."

According to Mr Ward the average balance of these accounts had climbed by more than $8000 over the last five years.

"We expect this trend to continue again this quarter," Mr Ward said.

"Sheep meat prices are hitting record highs and many producers are looking to take advantage of the favourable market by selling now and investing the profits into FMDs.

"The global financial crisis had also bolstered interest in term deposits generally.

"It really heightened investors' awareness of risk making deposit rates particularly attractive when you compare their low risk against other investment vehicles such as the share market and managed funds.

"Increasingly unseasonal weather and repeated incidences of drought also are pushing farmers to be more pro-active with risk management.

"FMDs are certainly a significant part of many farmers' risk management strategy."

The Emerald Group's WA general manager Rob Proud hadn't seen a direct correlation between this year's grain sales figures and the increase of FMDs in WA as reported by Mr Ward.

"In terms of grain there's been an increasing number of growers asking for their payment up front," he said.

"Demand for higher pool payments through harvest have seen an increase, they're up to 80-90 per cent already.

"If anything, in my experience there has definitely been an increase in cash sales and growers holding onto their grain for longer periods of time.

"In this lowered pricing environment farmers are looking to see their grain value up front and a way to pay less tax.

"I can't say there's been a recognisable spike in grain sales over the last year."

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