Big Drop In Milk Price Will Hit Waipa Hard

Fonterra’s recent announcement sees a drop in the forecasted 2024 season milk price, from the previous $8.00 per kg MS to $7.00 per kg MS. The impact on the wider Waikato region, which contributes approximately 23% of the total New Zealand milk supply, will be large. In dollar value, this is a hit of $500m to the Waikato Region, of which $200m will be a direct hit to those smaller towns that make up the Waipa and King Country districts.

Waipa based Chartered Accountant Jarrod Godfrey, Associate Partner at Findex Waikato, is encouraging dairy farmers and other business owners in the region to be proactive and take steps towards revising business forecasts, and planning ahead for the drop in expected revenues.

“Dairy farmers should be engaging with their local accountant or farm advisor now to see what the farm cashflow looks like at the proposed $7.00 milk price. Other business owners need to model what a drop in business revenue might look like – as we have already heard from local farmers that they will be tightening belts a few notches” he says.

For an average 124 HA Waipa dairy farm, peak milking 370 cows, the current drop in milk price means reduced farm revenues for the 2024 season of $145k.

“For any business, a drop in yearly revenues of $145k, or say $12k per month, is going to hurt. Unfortunately, most of this will be coming off the bottom line, which means dairy farmers in our community won’t be in a position to spend any of this locally with retailers or service providers. Taking steps now to forecast what this impact is for your business, is crucial” he says.

“Farmers are generally conservative in nature, but also very proactive in managing risk in their farming businesses. As a result, we are already starting to see farmers take steps now to budget for a lower milk price environment. Unfortunately, this budget won’t have much in the way of discretionary spending, with expected reductions in areas such as repairs, maintenance, capital expenditure and personal spending,” says Jarrod.

He says having knowledge of what the new cashflow forecast looks like will help farmers and other business owners to prepare.

“The agribusiness industry continues to grow and develop with the help of technology advancements. The growing array of farming technology means that farmers are better placed now more than ever before to react faster to adverse events, including milk price drops. These tools often include farm financial tools such as Xero/Figured” he says.

“Taking steps now to re-forecast your farm cashflow will help you navigate this unfortunate milk price drop. And when milk prices re-bound, which they often do, you will be well placed to take a firm grip on those future profits.”

© Scoop Media