Farmers will need tactics and supportive suppliers

Farmers will need tactics and supportive suppliers

The drop in Fonterra's forecast Farmgate Milk Price for the 2014/15 dairy farming season to $4.70 from $5.30 will test dairy farmers, and industry body DairyNZ is offering them some advice on tactics to cope with the challenging times ahead.

DairyNZ's chief executive Tim Mackle says while managing in a low payout year is nothing new for many farmers, the $4.70 milk price would be one of the lowest in the past six years. (milk price in 2008-09 $4.75)

"We expect farmers will have to apply more thinking and planning around cashflow and business management decisions as a result of this latest forecast. Around 86 percent of milk produced in New Zealand comes from Fonterra farmers. They will also be quite rightly expecting agri-business suppliers including banks to share the load and pitch in to help them manage their way through this.

"We'll be encouraging farmers to focus on making cost-effective choices, rather than just straight cost-cutting. Farmers will need a budget and projected cashflow that they update regularly in these circumstances. It's a concern to hear that a great number of farmers are not regularly monitoring cash budgets against actuals and it's an area where closer scrutiny can really pay off.

"If they don't have that then they should be talking to their accountant or banker and getting them involved in developing one. DairyNZ also has a range of budget templates to help farmers get started. It's all on our website or available through our 0800 DAIRYNZ number," he says.

"We are also pulling together research, data and lessons learned from similar seasons and providing this to farmers via events ahead of next season.

"Given that farmers have probably spent 60 percent of their total farm working expenses for this season by December, there is limited potential to cut back on farm working expenses.

"The main areas where farmers might make cuts could be repairs and maintenance this autumn and capital expenditure. Feed management decisions will need careful planning to ensure cows are in good condition for calving next year. Another area that requires close scrutiny is off-farm grazing costs for 2015 - farmers would do well to negotiate a better rate from their graziers when these are locked in early in the New Year.

"We've calculated that around a quarter of dairy farmers are facing some business risk this season at the $4.70 milk price. That means they will have difficulty meeting their interest payments, rent and farm working expenses without incurring more debt," he says.

A good level of retrospective payments over this past winter reflecting a record milk price last year have been crucial in boosting the total milk income for most farmers for 2014/15. "However, we are mindful that some people who started out this season will not have these payments and will need extra support," he says.

"We think the 2015/16 season is when things will crunch financially for many people. We are gearing up to help farmers share advice and options with each other for remaining profitable.

"We don't expect milk prices to recover in the first half of 2015. So the start of the season next year in June will be when things could get really tough for farmers and they'll need a robust plan that includes some practical and useful tactics up their sleeve to cope financially."

DairyNZ's six tactics for farmers

1. Assess the current state of your business. The first step is to get clarity on your financial position.

2. Understand your options and create a plan.

3. Execute the plan well - keep the basics of good farm and business management in mind.

4. Focus on good pasture management to ensure you maximise use of what you can grow as feed within your own farming operation. Pasture has already been paid for. Don't waste it.

5. Identify those who can help you succeed and ask for and use that support.

6. Communicate with partners, staff, bankers, accountants and other rural professionals.

Table of loss in regional value of milk production income based on 2013-14 production

Please note that 2013-14 production was high nationally, up 10% on the previous year.
Comparison with record milk price of $8.40 last season, with a $4.70 milk price results in the following losses regionally (and for NZ)

Region

$8.40 last season to $4.70 ($3.70 change) December 2014
(millions)

Northland

$378 million

Waikato

$1,828 million ($1.8 billion)

Bay of Plenty

$ 467 million

Taranaki

$ 684 million

Hawke's Bay

$ 62 million

Manawatu

$300 million

Wairarapa

$226 million

West Coast-Tasman-Marlborough-Nelson

$317 million

Canterbury

$1,306 million

Otago

$355 million

Southland

$828 million

New Zealand

$6,752 ($6.8 billion)

-ENDS-

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