Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Better forecasting for farmers

Better forecasting for farmers

With a forecast 2015 farm gate milk price of $6.00 per kilogram of milk solids, the concern facing dairy farmers is whether their cost structures can sustain a payout at this level, or at an even lower level, as some commentators are predicting.

In May, almost 3 months before Fonterra announced its downward revision to the 2015 forecast farm gate milk price, Reserve Bank Governor, Graeme Wheeler, noted in a speech to DairyNZ in Hamilton that “dairy debt almost trebled over the past decade, and currently stands at $32 billion”; noting further that “it is concentrated among a small proportion of highly leveraged farms with around half of the dairy debt being held by only 10% of dairy farmers.”

Mike O’Connor, a Director in PwC’s Corporate Finance practice based in Christchurch says, “We can reasonably assume that a disproportionate number of the more heavily indebted dairy farmers will be located in Canterbury and Southland; provinces which have experienced rapid land use change over the past 10-15 years, as sheep and cropping units have been converted to dairying.

“Farmers will need to look to minimise the impacts to their businesses using the best techniques available. We’re considering the impact of the risks on financial outcomes using advanced quantification techniques, which can be applied to any financial modelling, but farm budgeting is particularly relevant at present given the payout uncertainties,” Mr O’Connor says.

Mr O’Connor promotes this innovative modelling approach, “we use a technique called stochastic or probabilistic modelling where we replace single number inputs – like a $6.00 payout – with a distribution of possible values for all key variables in a budget and then tie key relationships together, such as less supplementary feed and less production, or lower payout and higher fertiliser costs. Probabilities can even be attached to events like droughts and the effects on production.

“The power of this technique is enormous, allowing the probability of a farmer failing to meet his or her banking covenants or needing to increase borrowings to meet a probable cash flow shortfall to be reasonably assessed. We can go beyond the realm of ‘it might happen’ to ‘we can expect it to happen with x% probability’, which gives us more time for to implement mitigating strategies, well before any crisis point.”

The resulting outcome is a distribution of outputs, not just one single output, that can be used to assess the probability of a particular event occurring.

- ends –

© Scoop Media

Business Headlines | Sci-Tech Headlines


Postnatal Depression: 'The Thief That Steals Motherhood' - Alison McCulloch

Post-natal depression is a sly and cruel illness, described by one expert as ‘the thief that steals motherhood’, it creeps up on its victims, hiding behind the stress and exhaustion of being a new parent, catching many women unaware and unprepared. More>>


DIY: Kiwi Ingenuity And Masking Tape Saves Chick

Kiwi ingenuity and masking tape has saved a Kiwi chick after its egg was badly damaged endangering the chick's life. The egg was delivered to Kiwi Encounter at Rainbow Springs in Rotorua 14 days ago by a DOC worker with a large hole in its shell and against all odds has just successfully hatched. More>>


Trade: Key To Lead Mission To India; ASEAN FTA Review Announced

Prime Minister John Key will lead a trade delegation to India next week, saying the pursuit of a free trade agreement with the protectionist giant is "the primary reason we're going" but playing down the likelihood of early progress. More>>



MYOB: Digital Signatures Go Live

From today, Inland Revenue will begin accepting “digital signatures”, saving businesses and their accountants a huge amount of administration time and further reducing the need for pen and paper in the workplace. More>>

Oil Searches: Norway's Statoil Quits Reinga Basin

Statoil, the Norwegian state-owned oil company, has given up oil and gas exploration in Northland's Reinga Basin, saying the probably of a find was 'too low'. More>>


Modern Living: Auckland Development Blowouts Reminiscent Of Run Up To GFC

The collapse of property developments in Auckland is "almost groundhog day" to the run-up of the global financial crisis in 2007/2008 as banks refuse to fund projects due to blowouts in construction and labour costs, says John Kensington, the author of KPMG's Financial Institutions Performance Survey. More>>


Health: New Zealand's First ‘No Sugary Drinks’ Logo Unveiled

New Zealand’s first “no sugary drinks logo” has been unveiled at an event in Wellington... It will empower communities around New Zealand to lift their health and wellbeing and send a clear message about the damage caused by too much sugar in our diets. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news