Farm Finance: Taking stock of high stock prices - will buying now pay off?

There can be some unintended consequences of higher stock prices, writes rural accountant and tax adviser Kieran Coughlan

One issue faced by some farmers who buy stock this time of year with the support of a stocking loan is they will find their usual stocking loan amount is in many cases not near adequate to fund the quantity of animals usually purchased. Picture: O'Gorman Photography.

Cattle prices are at a record high, which is fantastic for those with animals to sell, but not so good for those who have animals to buy. Hopefully, if prices remain strong, they will get a just reward when it comes time to sell. 

Speaking to one farmer this week, he said: "You’re either in the game, or you're not." His point was valid, and if you try to second-guess the market and jump in and out, it’s easy to get caught offside.

For those with cattle to sell or who have recently sold cattle, the strong prices received will have bolstered the bank balance, making the heady prices now commanded for store cattle and young stock are easier to stomach.

There can be some unintended consequences of higher stock prices. One issue faced by some farmers who buy stock this time of year with the support of a stocking loan is they will find their usual stocking loan amount is in many cases not near adequate to fund the quantity of animals usually purchased.

Planning in advance and seeking additional credit is one option available. Obtaining additional credit before one needs it is a must as it can take away a lot of stress that comes with over-committing while under-resourced.

For an extension to bank credit, the bank may typically require a tax clearance certificate, three years' recent accounts, three years' income tax returns, three years' notices of assessment and an up-to-date listing of stock and creditors.

For smaller amounts, some banks have preapproval procedures which can speed up loan application process times, but in other, more complex cases, it can take a number of weeks or even longer to get an application processed and longer still should additional information be required.

Some farmers may prefer to take a credit line rather than a stocking loan. A credit line gives a farmer access to a maximum amount of funding and works like an overdraft, which can be drawn down at any stage over the approved period, usually set at 12 months but typically extended from year to year.

The farmer could choose to draw it all down, or none, or in multiple stages — the credit line can be drawn down and repaid and drawn down and repaid over and over again during the approval period.

The advantage of a credit line over a stocking loan is that one only pays interest to the extent that they have made use of that credit line and where the amount of credit taken reduces, say for example, when a farmer temporarily repays their credit line, the farmer will benefit from an appropriate discount in the interest charged.

With a stocking loan, where a farmer repays the loan, they typically don’t have the capacity to redraw down that loan, meaning the farmer doesn’t have the capacity to get credit for funds they may have themselves, which they could apply against the loan temporarily.

For those whose wish to derisk, not taking on additional credit, the options include carrying a lower number of animals, but understocking can lead to inefficiencies and in that context it might be worthwhile considering either selling surplus grass or silage, contract rearing, cropping with barley, or contract growing maize. 

Each of these options need to be thought-out and the economic return estimated alongside considering available time and resources.

In the case of farmers who have sold cattle at high prices and are reinvesting in cattle, there are accounting and tax implications which should also be considered.

For accounting purposes, stock is carried in the accounts at cost, meaning the cost of animals bought in 2025 and to be carried into 2026 will, for a farmer with a December year-end, not be factored against profits until next year, but there is one tax relief which can help in these circumstances.

Where a farmer's closing stock of animals has increased in value, then it is generally possible to claim stock relief at a rate of 25%, which can take some sting out of the tail, but making an election to claim stock relief can affect unused losses or capital allowances forward.

A young trained farmer or farmer in a registered farm partnership can get stock relief at 100% or 50% subject to certain limits. As always, farmers should obtain professional advice relevant to their own circumstances.