CASHED-UP dairy farmers have poured millions of dollars into Farm Management Deposits.
In total, Victorian farmers have poured $176 million into Farm Management Deposits in the three months to June 30.
The massive injection of money pushed Victorian farmers' FMDs to a record $709 million at June 30, compared to $532 million in the March quarter.
The Federal Department of Agriculture Forestry and Fisheries was unable to shed any light on why the surge had occurred.
However, the chairman of dairy giant Murray Goulburn, Ian MacAulay, said much of the increase had to be due to a surge in dairy farmers' incomes on the back of a 56 per cent jump in milk prices in 2007-08.
Milk prices hit a record 50c/litre in 2007-08, compared to 32c/litre in 2006-07, while production in the state's south remained relatively stable.
"The amount of cash (dairy) farmers in the south (of Victoria) have received is so far ahead of last year they are taking the opportunity to minimise their tax," Mr MacAulay said.
FMD deposits normally surge in the June quarter as farmers pour money into FMDs to reduce their taxable income, before being drawn down again in response to drought, poor returns and rising costs.
But even when compared to June last year, Victoria's FMDs rose by $86 million, from $623 million to $709 million by June 30.
In contrast, NSW and South Australian farmers' FMDs have declined during the same period.
Queensland farmers' FMDs only rose by $32 million, to $715 million and Western Australia by just $11 million, to $406m.
Rural Finance Corporation of Victoria general manager Malcolm Smith backed Mr MacAulay's view, saying a good season in Victoria's south was probably the main driver behind the surge in FMDs.
"There would be some from grain industry, but the majority would be from dairy industry as a result of higher milk prices," Mr Smith said.
Farmer consultant John Mulvaney said a "cracker-jack" 2007-08 had led to a wave of dairy farmers using FMDs for the first time as well as others boosting existing deposits.
"In Gippsland, accountants are advising dairy farmers to use FMDs," Mr Mulvaney said.
"What it's (the rise in FMDs) saying to me is the rise in milk prices outstripped the rise in input costs. But this year (2008-09) we have higher input prices, while milk prices remain reasonable."
However, while southern dairy farmers have put away millions, those in Victoria's north have not been so lucky as low water forced them to buy in fodder and grain.
Mr Smith said farmers who banked FMDs could still apply for drought (exceptional circumstances).
However, he said FMDs were regarded as liquid asset (cash) that would be offset against any claim of a trading loss due to the drought.
