Farmers quietly optimistic about dairying future

The Ministry of Agriculture and Forestry’s (MAF) 2004 Farm Monitoring report into dairy production says 2003/04 was a difficult year for many but the recently announced increase in payouts means most farmers are heading into 2004/05 quietly optimistic about their industry.

MAF Policy runs the annual monitoring process to examine the production and financial status of farms in terms of the cash income and expenditure. Trends, issues and sector concerns are also monitored.

The model farms depicted in the report are representative of their farm type within their region. Farms around New Zealand have been examined, and information for each model is drawn from 20 real farmers and discussions with a wide cross-section of agribusiness.

Regional Team Leader Phil Journeaux says the aim of each model is to best typify an average farm for the region, and budget figures are indicative figures of the average levels of income and expenditure, management, stock performance, debt and expenditure on development and capital purchases.

Phil Journeaux says the 2003/04 season was a difficult climatic year for dairy farmers. Most regions enjoyed a temperate winter after a dry autumn, followed by a cool, dry spring which tended to flatten out milk production. The main exception to this was Northland, which experienced a second wet and difficult winter and spring.

But while late spring and early summer were relatively “normal”, most regions experienced very high rainfall in February, particularly in the lower North Island, which saw widespread flooding. “Many dairy farms in the region were affected by a disrupted milk pickup, and 50 to 70 farms were severely affected with pastures and buildings flooded,” Phil Journeaux says.

Farmers have seen a variable autumn and most regions have had good conditions through mid-May into June. “Most farms are going into this winter with adequate to good pasture covers, but with cows in less than optimal condition.”

The report observes farmers spending cautiously at the beginning of the year, based on forecasts of a payout only slightly higher than 2002/03 and expectations of a further drop in 2004/05. As it turned out, the final payout figure lifted throughout the year and farmers were considerably buoyed in early June 2004 with the announcement of a final payout for 2003/04 of $4.23/kgMS, and forecasts of a $3.85/kgMS payment in 2004/05.

At a national level, gross farm revenue increased by 18 percent compared with 2002/03, while cash farm expenditure remained essentially the same. Despite the lift in the payout, many farmers still recorded a disposable deficit from their farming business, albeit significantly better than that recorded in 2002/03. Of the 100 surveyed farms, 57 recorded a deficit for 2003/04.

Phil Journeaux says most farmers are budgeting, and hoping, for a more normal climatic season in 2004/05 and, on the basis of this, an increase in production. This increase, and a better deferred payment relative to 2003, should see gross farm revenue nationally dropping only one percent, despite a drop in payout for next season.

There is significant interest in once-a-day milking, with many farmers doing this, or proposing to do it, from Christmas onwards. Some are intending to milk once-a-day for the full season in 2004/05, and will undoubtedly be watched closely by their fellow farmers.

Looking at dairy product prices, the report details:

World prices for cheese and butter rose over the 2003/04 season to reach relative highs. This was due both to a tight supply situation as a result of lower Australian exports due to the lingering drought effects, and the weaker United States dollar (USD), which made USD price-denominated products cheaper in countries where the currency had appreciated against the USD. Skim milk powder (SMP) price rises were constrained by the United States Department of Agriculture (USDA) lowering the US domestic support price for SMP to USD1,820/tonne in July 2003, effectively capping the international SMP price at this new level. These are assumed to remain capped. Whole milk powder (WMP) and SMP prices usually follow fairly similar price tracks, and this relationship continued over the 2003/04 season with WMP prices rising slowly in the first part of the season before plateauing. Casein prices recovered slowly over the season, but remain reasonably low. They are projected to continue to recover over the medium term. Prices for dairy products are generally expected to remain strong over the medium term. Strong growth in demand for dairy products in non-OECD nations is expected, arising from growing per-capita incomes, changes in lifestyle and diet, population growth, urbanisation, and the increasing presence of western retail chains. As at June 2004, the industry weighted-average payout to farmers for the 2003/04 season (net of industry-good levy of 3.4 cents a kilogram of milk solids [kgMS]) is estimated to be $4.20/kgMS. The industry weighted-average payout is forecast to fall to $3.15/kgMS in 2005/06.

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