Livestock Valuations
Posted: 12 October 2011
The Government’s 2011 Budget signalled potential changes to the livestock valuation election process.
Government is concerned that farmers are taking advantage of the ability to switch back and forth between the Herd Scheme and the National Standard Cost Scheme, allowing increases in market values to go untaxed with decreases being deductible for tax purposes.
What we may see is a tightening of the rules around moving between the schemes. It is not expected however that either of the schemes themselves will be removed.
The last review of this legislation was in 1993. A public consultation document will be released on this Budget initiative later in the year.
As your accountant, we take utilising the valuation schemes to your best tax advantage very seriously.... We’ll keep you posted as fresh information comes to light.
Livestock Valuations Updated
The IRD have recently announced this year’s livestock Herd Scheme Values and we think this is a great opportunity to update you on the latest movements. The Herd Scheme Values are the National Average Market Values as determined by a process involving a review of the livestock market as at 30 April.
Sheep Values
Sheep values have increased on average by about 40% to record highs throughout the sector. The profitability being experienced by sheep farmers at the moment is reflected in the values. Also playing a part here will be the lack of supply of lambs due to the storms experienced in the Central North Island and Southland last spring which led to a significant number of lambs being lost.
Deer Values
Deer values have generally risen overall from 2010 to 2011. The deer market is experiencing some ‘quiet positivity’ with worldwide demand for product beginning to increase as worldwide frozen venison stocks diminish. Demand for chilled product is increasing leading to higher meat returns for deer farmers.
Beef Cattle Values
Beef cattle values have increased significantly on last year’s values with Mixed Age cows rising by 26% to $997 per head. This is the highest value for a Mixed Age Beef cow since the Herd Values were introduced in 1987 and is higher than the previous peak of $916 in 2002. The worldwide increase in demand for food is no doubt the driver behind these increases. Certainly some of the supplier driven pricing in the beef market is leading to good returns being experienced by beef farmers at the moment.
Dairy Cattle Values
From the 2010 year to the 2011 year there have been good increases in the value of rising 2 year heifers and mixed age cows which reflects the positivity in the dairy market from increasing dairy pay outs and from indications that these will continue for a year or two. There have been significant increases in the value of rising 1 year heifers. These values were higher than anticipated by many commentators and are no doubt due to the high prices being achieved for heifers being sold into offshore markets such as China.
General Summary
While there is the ability within the livestock valuation legislation to change livestock schemes, the decision to change schemes depends on a number of factors such as:
- Are market values for that class of livestock perceived to be increasing or decreasing? What confidence is there in the industry?
- Is the farmer likely to retire from farming in the short term?
- Is the farmer in a rapid growth phase, and how important is it to preserve cash flow within the farming operations in the short term?
- What is the taxable income for the farming operation, and how is the livestock valuation decision likely to impact on exposures to IRD interest?
Election decisions should be made on a case by case basis.
