Farmers told to be aware of farm income plunge following summer drought

Farmers have been told to prepare for lower farm incomes
Farmers have been told to prepare for lower farm incomes

Farmers have been told to be aware as farm incomes could face a sharp drop this autumn due to the summer drought.

The drought means arable yields will be down, vegetable producers are looking at significant crop shortages, and livestock producers do not have enough forage to see them through the winter.

All of which could have a dramatic impact on cash flow and profits.

According to rural accountants and financial planners Old Mill, farmers should plan ahead to minimise the financial and physical impact.

And there is plenty that farmers can do to prepare, from raising an overdraft to pay for forage to reducing tax payments on account.

Higher commodity prices will go some way to alleviating this pressure, but the impact will vary from farm to farm.

Some farmers are already looking at culling up to half their herds to reduce forage requirements over the winter, while others may need to raise their overdraft to cover increased feed costs.

“It is a very frustrating and demoralising time for both livestock and arable producers,” says Mike Butler, chairman of the board at Old Mill.

“If selling stock, that will of course reduce your output, and may crystallise some profits. But cull cow and store values are already suffering, so you need to take that into account,” Mr Butler said.

If looking at alternative feeds, Mr Butler said it is important to consider the likely impact on productivity – but there may also be an upside.

“When commodities are in short supply there is likely to be a dramatic rise in prices – if that does happen, make sure you’re in a position to take advantage of it,” he said.

However, in the immediate future, he said it is important to prepare for reduced incomes.

“Are you getting the right tax credits? Could you reduce tax payments on account? Although July payments will already have been made, if you think income and therefore tax bills will be down you can choose to reduce your payments on account at any time,” Mr Butler added.

Cash flow planning will help to identify any pinch points, so you can act early to avoid them, he added: “The important thing is to understand the implications as they develop, and be proactive, rather than putting your head in the sand.”