As you may be aware Fonterra has made some changes to their Advance Rates to help improve cashflow on farms and simplify their guidelines. The key changes which apply from 1st June 2020 are:
- Monthly payment date has been brought forward to the 15th of the month (currently the 20th)
- Final settlement payments have also been brought forward with the final October retro payment to be paid within 5 workings days of the Annual Results being announced
- Advance rate guidelines have been simplified with the advance rate in July starting at 65% of the mid-range of the forecast Farmgate Milk Price range
Fonterra has also recently announced the opening payout for the 2020/21 season and we are nearing the final provisional tax payment for May balance date clients on 28th June 2020 so it is timely to look at how the payout is currently shaping up.
The opening payout for the 2020/21 season is $6.15 per kgMS compared with the current 2019/20 payout of $7.20 and the final 2018/19 payout of $6.35. From a tax and cashflow point of view, the payout profile is as follows:
*These are derived from the base advance rate plus the capacity adjustment and will vary slightly across farms.
The payout has moved up and down in the last few years but remains above breakeven point per our farm statistics. With the payout having been better for a couple of years now many clients have already been paying provisional tax or will need to make voluntary payments on 28th June 2020. IRD interest generally only applies from the final installment date (being 28th June) so if you expect a large profit in 2020, we encourage you to contact us to arrange a review of your tax position before the June tax is due.