After salting away a record-breaking $6.7 billion a year ago, primary producers are expected to top up their farm management deposit accounts even further in coming months.
Healthier deposit interest rates and higher borrowing costs, combined with a more cautious approach to big spending plans in the face of rising farm costs and drier seasonal prospects, are likely to prompt farmers to put spare funds aside, rather than spend.
FMDs will also offer a tax effective savings option for earnings accumulated in recent years after many producers benefitted from big seasonal conditions and good market prices.
At the end of last financial year the total value of FMD accounts Australia-wide jumped almost $1.5b from $5.2b on March 31 2022 to $6.76b by June 30, according to the Department of Agriculture Fisheries and Forestry.
That was up about $500m on the previous end of financial year result and the biggest accumulated sum held in FMDs since a slightly smaller $6.75b was stashed away in June 2019.
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National Australia Bank's regional and agribusiness executive, Khan Horne, said last year's surge in savings coincided with the first uptick in interest rates after the Reserve Bank of Australia started lifting its cash rate in May, as part of the current rate tightening cycle.
Last financial year NAB recorded a jump in its total FMD balances at the end of June of almost 30 per cent.
It was the biggest volume rise after five years of relatively flat growth.
Mr Horne said agribusinesses were now taking advantage of good earnings during the year to build resilience into their businesses by preparating for inevitable tougher seasons ahead.
FMD accounts allow primary producers to make tax deductible deposits during more profitable years and withdraw them in more challenging seasons.
The outstanding tax payment on the deposited funds is calculated and paid based on farmers' earnings in the financial year in which the money is withdrawn and spent.
Mr Horne said NAB had generally noted growing inquiry from customers about term deposits as they sought better returns and more certainty in a volatile rate environment.
We've had an 80pc increase in total term deposit volume from the bottom of the cycle (in 2021) to now.
- Khan Horne, National Australia Bank
"Conditions have changed significantly in the past year, moving from an ultra-low to a rising rate environment, with the RBA increasing the cash rate 10 consecutive times, from 0.10pc to 3.6pc," he said.
"We have observed the shift from transactional or at-call accounts into term deposits.
"We've had an 80pc rise in total term deposit volume from the bottom of the cycle (in 2021) to now."
This trend could slow as the rate difference between term deposits and at-call accounts narrowed.
He noted the bank's total business deposit activity had eased of late, potentially reflecting the economic realities of less consumer liquidity caused by rising interest rates and cost of living increasing.
FMD top up
However, NAB still expected to see a topping up of FMD balances as the financial year closed out.
"FMDs typically spike in the June quarter, largely due to tax planning, and it's generally advisable to speak with tax planners, financial advisers and bankers in the lead up to June 30 about the appropriate debt, cash and cash flow planning and management," Mr Horne said.
"Agribusinesses are already considering and utilising tax-effective FMDs as part of their well-considered tax plans and to build resilience into their business."
Another factor which may contribute to a surge in FMD savings being locked into term accounts is NAB's expectation that the RBA's cash rate rises may have peaked following its decision to pause increases this month.
Aside from tipping a freeze on interest rate rises, senior agribusiness economist, Phin Ziebell, said NAB had also lowered expectations for the Australian dollar by year's end.
It previously forecasted US78c for the dollar, but has downgraded that to US74c after the currency tracked sideways during April, below US68c, as it weathered deteriorating global economic forecasts.
Vic farms big savers
Meanwhile, in the wake of last June's national FMD tally peaking above $6.7b, a rapid drawdown has followed in the past nine months as some farmers utilised their funds, trimming the total to $5.8b in December and March.
That is, however, still well above any previous March figure - the next highest being in 2020 at $5.5b.
Victorian farmers led last year's June deposit tally with more than $1.71b in the bank, followed by NSW ($1.57b), Queensland ($1.43b), South Australia ($1.05b), Western Australia ($847 million) and Tasmania ($146m)
Victorian deposits remained the biggest on March 30, at almost $1.5b.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
