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Riding the milk roller coaster

Riding the milk roller coaster

Dairy farmers are being urged to take a second look at their budgets against the background of a plummeting payout.

Fonterra now is forecasting a $3.90 payout per kg of milksolids, $1.75 below the average cost of production, and there’s fears that next season may be just as bad.

Farmers, who have already gone through their budgets to make savings, are being urged to get together with one another and farm consultants, to see what else they can trim.

Dairy farmers who move now stand more of a chance of riding out the milk roller coaster’s latest descent further into the trough, said Hayden Dillon New Zealand's head of corporate agribusiness for accounting and advisory firm Crowe Horwath

“There’s a lot of things you can take ownership of on your farm, and start to give yourself a sense of control, but you have got to do it now,” Dillon said.

“You can’t wait until you need to go to the bank to get or increase the overdraft. You need to have these conversations now.”

Dillon was speaking as dairy farmers were urged to look out for one another as Fonterra announced its lower forecast.

“The operators that are feeling real pressure are the ones who are highly leveraged,” Dillon said.

“While you have no control over the volatility of the milk price, you can control the risk around your inputs. Let’s look at your farm and look at things you can control.”

Dillon, who is speaking at the Dairy Women’s Network annual conference at Claudelands Events Centre, Hamilton, on May 5 at a workshop entitled Riding the Milk Price Roller Coaster, said every farm would be different, but everyone could review their inputs and their associated risks to the farm to improve their outcomes.

“We have come from a high input environment and we had a high output, but it’s not a direct relationship. It does not necessarily work that way.”

There’s many things farmers could do to save money. Mitigating risk internally, such as setting mortgage repayments at a fixed rate, was just one, Dillon said. As was reviewing large costs such as feed inputs and insurance premiums.

“Personal Insurance costs are very high for farmers and can be hard to justify, but in terms of risk mitigation, it’s hard to go past the fact that the farm will struggle without the key management in place. So, having a conversation to see what the minimum cover is you can accept, is part of taking control. You might have to do a trade-off for what you can afford with what you actually need,” he said.

“There’s zero farmers can do about the commodity pricing. So let’s look at the farm inputs and the things that we can control.”

Dillon recommended farmers get a trusted adviser in to help with advice, and work through the key inputs, their risks, and how you can mitigate them.

Dairy Women’s Network chief executive Zelda de Villiers said the “United to Succeed” theme had been weaved throughout the conference which was all about dairy women supporting each other in tight times.

“It’s going to be a great opportunity for women to get off farm before the start of a new, challenging, season,” de Villiers said.

She asked rural businesses to unite and help the women who could not afford to attend the conference.

“Many dairying women consider conference the most important professional development opportunity on their annual calendar and one they rarely miss. However the reality for some is the current season has hit them in the pocket and they cannot afford the registration fee or accommodation cost.”

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