FMDs top $4.6 billion

More than $4.6 billion was locked down in farm management deposits (FMD) at the end of June, or about $465 million more than at the same time last year.

The figure is set to grow substantially more, too, said National Australia Bank's agribusiness general manager, Khan Horne, thanks to Canberra's recent decision to lift double the producer limit on deposits to $800,000 next year.

"A lot of people will welcome the increased threshold and the increased opportunity for them to save to better manage the peaks and troughs in seasons and market price cycles," he said.

It was not unusual to find farmers with FMD balances almost constantly retained at the current $400,000 limit.

Mr Horne said about 48,500 farmers and their accountants had learnt to value the good interest return received from FMDs and the taxation advantages associated with putting aside earnings after big income events, then only paying tax when the funds were withdrawn - such as in drought or poor earnings years.

FMDs had also become a strategic savings option for farmers accumulating funds as part of longer-term plans to buy extra land or invest in new sheds, fencing, silos, machinery or more stock, or as a superannuation tool.

He said while much was often made of the burden of Australia's $54b farm debt (plus forestry sector borrowings) it had been relatively stable for five years, while FMD savings had grown to be equivalent to 6pc of the rural debt.

That compared with just 1pc in 1999 when the current FMD arrangements were formalised and farm debt was only about $25b.

"This means farmers' have significantly improved their ability to manage cashflow in tough times, and I see the doubling of the threshold limit as a great initiative to further encourage farmers' capacity to save," Mr Horne said.

"You don't have to be a big enterprise putting away big sums - it might only be $10,000 or $15,000 in a year - it all contributes to a useful buffer when the need arises."

Despite some seriously poor seasonal conditions in Queensland and northern NSW an 11 per cent rise in FMD levels in 2014-15 was the biggest annual surge in the aggregate value of the specialist savings category in a decade, with totals in NSW and Victoria both breaking the $1b total for the first time.

Federal government data shows the number of farmers participating in NSW jumped from 11,675 to almost 13,000 putting away about $1.1b, while Victoria had 12,282 farmer depositors (up from 11930) saved $1.005b.

Last decade FMD totals were often relatively static from year to year, sometimes going backwards.

Even in Queensland where up to 80pc of the state is drought-declared the number of producers with FMD accounts in 2014-15 rose slightly from 8421 to 8582 with the savings total up from $700m to $840m.

While many Queensland producers were still likely to be drawing on their savings and some of the rise in the state's FMD total was probably attributed to farmers putting away income received from drought-forced destocking sales, Mr Horne said the jump in FMD support was also attributed to some good news income stories, including horticulture earnings, better prices for traded livestock and good cotton and sorghum returns for those who lucked a crop.

Cattle and lamb prices have rebounded to hit new records in the past six months, while wool also surged to a four-year high in June.

The biggest FMD savers last financial year were mixed grain and livestock producers and grain-only producers whose industry totals lifted to $1.2b and $1.03b respectively.

"The grain and mixed farming sectors contributed nearly 70pc of the new volume in 2014-15," Mr Horne said.

Big cropping seasons in South Australia and Western Australia bolstered those state totals to $827m and $772m respectively.

Both states also had notably more FMD account holders, as did Tasmania, to a lesser extent, where 30 new farms depositors helped lift its savings to $69m.

"FMDs are not the only solution to boost drought preparedness but its part of the answer for sustainable agricultural production planning," said Mr Horne, applauding the federal government's decision to adopt the Agricultural Competitiveness White Paper recommendation to raise the FMD ceiling to $800,000 next July.

He said FMDs were part of the long-term solution to increase farming sector resilience and avoid reliance on drought loans.

"We can't necessarily prepare for every big cyclone or one-in-100-year flood or drought, but we need to be better able to prepare for recovery from difficult weather events and FMDs can certainly help take the peaks and troughs out of farming's income volatility."

While total FMD savings are up, farmers continue to tapping into FMD accounts to manage cashflow needs, with $600m withdrawn between July 2014 and March.