Farmers hold record $7 billion buffer as El Nino threat looms over summer

The Farm Management Deposit Scheme was created to help farmers recover from drought. File picture. Farmers are heading towards summer with one of the largest self-funded financial reserves in the history of Australian agriculture sitting in the bank, as producers continue to grapple with prolonged dry conditions and forecasters monitor a rapidly intensifying El Nino event in the Pacific Ocean. Subscribe now for unlimited access to all our agricultural news across the nation 40% OFF All articles from our website & app The digital version of This Week's Paper Our entire network Data released by the Department of Agriculture, Fisheries and Forestry shows primary producers held $7.04 billion in Farm Management Deposits (FMD) across 43,613 accounts at June 30, although authorities caution that the bullish figure masks significant differences between industries and regions. There was $5.93 billion sitting in 39,868 FMD accounts at the end of March. Since the scheme was introduced in 1999, FMDs have been used as a liquid asset by farm businesses to support households during drought and other periods of reduced farm income, while also providing working capital for day-to-day operations, crop planting and livestock rebuilding. The latest figures follow a year in which several cropping regions benefited from favourable growing conditions and stronger production and livestock sectors posted solid profits driven by tight global supplies and steady international demand. However, the positives were offset by sustained dry conditions across large parts of the continent, including districts in Victoria and Tasmania in recent years experiencing a "green drought", where pasture growth and soil moisture deteriorate despite landscapes retaining a green appearance. NSW producers hold the largest share of national FMD balances at $1.77b, narrowly ahead of Victoria at $1.76b, while Queensland producers held $1.63b. During previous drought cycles, producers have withdrawn more than $1b from FMD accounts to buy feed, secure water supplies and rebuild livestock numbers. The Bureau of Meteorology declared an El Nino climatic event in the Pacific Ocean in June, while the US National Oceanic and Atmospheric Administration has placed a 69 per cent chance that the developing event will exceed the strength of any El Nino recorded since 1950. Rabobank general manager deposits Julie Blanchard said some producers had continued to build reserves despite cyclical uncertainty, while others were drawing down on accumulated savings to manage cashflow and business needs. "While seasonal conditions and commodity performance vary significantly across regions and sectors, we have generally seen producers who have had positive trading conditions using the opportunity to strengthen their balance sheets and improve liquidity positions," she said. Ms Blanchard said the latest FMD figures likely reflected a combination of factors rather than a single driver. "Strong cash flows in parts of the agricultural sector, combined with the approach of the end of the financial year, typically encourage producers to use FMDs as an effective cash management and tax planning tool," she said. The highest ever national FMD balance was $7.11b recorded during the quarter ending June 2023 which was driven by a consecutive run of profitable seasons out of the pandemic era, strong commodity prices and bumper grain harvests. It was $6.7b at the same time in 2022, $7.02b in 2024 and $7.08b on July 1 last year. The 2023-24 El Nino event saw large parts of eastern Australia suffer through intense heatwaves, despite unexpected widespread rainfall, with temperatures hitting up to 47 degrees, reducing crop yields, triggering destocking and water shortages, heightening fire risks and increasing feed costs. Agriculture Minister Julie Collins said the work of Australian farmers and producers was central to Australia's economy and trading relationships, and that the FMD figures were "testament to the hard work and resilience of our farmers and producers" in adapting to current conditions and planning for the future. "They recognise that while Australia's agricultural production continues to remain strong, it is important that farmers and producers have flexibility during times of disruption, including from the challenges that come with difficult seasonal conditions," she said. "Our Government will continue to work with our farmers and producers to deliver practical support, and to help them prepare for and respond to changing drought and climate conditions." Concerns emerged recently that proposed federal trust tax reforms could have unintended consequences for some farming businesses and the changes could potentially affect access to what was then a near-$6b farm-sector savings pool. 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