Dairy Farms about to get another boost

Dairy Farms about to get another boost

An expected increase in Fonterra’s final payout this Thursday will be a further boost for dairy farmers.

MyFarm Director Andrew Watters says the New Zealand public could be forgiven for assuming that dairy farming is in trouble following recent high profile receiverships, natural disasters and weather events.

“The fact is dairy farms with moderate debt are generating very good cashflow right now”.

Andrew Watters says 2009/10 has been a profitable year on South Island based MyFarm syndicates. For example the average MyFarm Southland dairy farm is generating a margin of $2.70/kg MS prior to debt servicing which is a return of more than 7% on total assets.

“The milk payout will average a very strong $6.50/kgMS for the four years to the end of this season.”

Since 2000 earnings on the average South lsland dairy farm before interest and tax have been a relatively consistent 44% of the payout with the profit margin ranging from 30% to 55% of total income.

“Take away the issue of debt funding and Canterbury and Southland dairy farms have been consistently profitable over the past 10 years.”

Watters expects at this Thursday’s annual result announcement Fonterra will increase shareholders distributable profit to the upper end of the indicated range of 40-50cents.

He says increases in average prices at Fonterra’s global DairyTrade over the past six weeks are another good signal for healthy farm cashflows. He predicts this will mean that many of the dairy farms caught with high levels of debt will be able to work their way through this season in an orderly fashion and there won’t be a flood of farms into the market, as some commentators suggest.

MyFarm is New Zealand’s largest private rural asset management company with 31 farm investment syndicates in New Zealand and Australia which it manages on behalf of investors. Most of these are partnerships between the on-farm equity manager and the off-farm investors.

The strength of the dairy industry is being well recognised by investors with good participation at on-farm field days over recent weeks.

“Investment interest in quality low or no debt investment propositions is strong because of this unique situation where farm cashflows are very healthy and yet farm values are subdued because of a lack of capital and tightening credit criteria.”

ENDS

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