Dairy profitability up, but not confidence

Photo / Brett Phibbs

Dairy farm profitability improved strongly in 2009/10 season compared to a year earlier, but farmer confidence remains fragile, a MAF report says.

Ministry of Agriculture and Forestry North Island regions manager Phil Journeaux says a higher dairy payout and lower farm working expenses had helped restore profitability to the sector.

"Most farmers had a poor financial year in 2008/09, and with the low payout forecast at the start of the 2009/10 season, farmers kept a very tight reign on expenditure."

The outlook for this season remained positive, but profitability would drop back slightly as farmers spending money on items deferred or reduced over the past two seasons - such as fertiliser, repairs and maintenance.

Nationally milk production increased in 2009/10, with a drop in the upper North Island due to the drought, offset by increases in the South Island.

However, the drought is expected to have a knock on effect in the early part of the new season with lower production in drought hit areas, the report says.

MAF monitors 160 farms around the country, with the average farm from the sample requiring a payout in 2009/10 of $5.63 per kilogram of milksolids to "breakeven" (covering farm working expenses, debt servicing, personal drawings and depreciation).

Journeaux says that the outlook for 2010/11 is positive, with farmers buoyed by the good initial payout forecast.

While farmers were optimistic about the future, that optimism was fragile given recent fluctuations in payout and pressures around debt, he said.

"Farmers are telling us that things are looking better, but they are being cautious and relatively small changes in incomes or expenses could affect their spending plans," Journeaux said.

The Ministry of Agriculture and Forestry's farm monitoring reports are compiled each year based on feedback from dairy farmers and industry representatives.

- NZ HERALD ONLINE