Prioritise farming budgets now

It's not the size of the herd, it's the production per head. Photo / Mark Mitchell

Dairy farmers need to start planning how to deal with the 2014/15 forecast cut in milk price, and a predicted drought for Northland is a serious added concern. The time to deal with these issues is now

Dairy farmers should pay close attention to farm costs this season, says industry body DairyNZ, in response to the reduced 2014/15 forecast milk price announced last week.

Fonterra's forecast milk price being reduced from $7 to $6 per kgMS means volatility is part of everyday life and dairy farmers will be conservative when making farm decisions this season.

Economists estimate the reduced payout could cut national income by $1.8 billion this dairy season -- an average per farm loss of about $150,000 (based on 2013/14 milk production).

DairyNZ chief executive Tim Mackle says for many farmers, $6 per kgMS is a break-even payout, meaning little capital expenditure or principal payments will take place in 2014/15. "While it is unclear where prices could be at the end of the season, volatility requires farmers to be prepared to react to changes quickly," says Mackle. "Now is obviously a good time to look at updating or developing a cashflow budget based on a $6 per kgMS milk price.

"Look at where the fat can be trimmed and where efficiency gains can be made, for instance growing and utilising more homegrown feed and looking at where supplementary feed can be reduced."

Farmers should also look at what contingency plans are in place for a possible dry summer -- perhaps early culling and once-a-day milking, rather than supplementary feed. And with large tax bills looming from last year's record season, farmers should also contact their accountant to recalculate their tax.

REGIONAL IMPACT

The estimated drop in farmer income ($7 down to $6 milk price)*.

Northland $100 million
Waikato $484 million
Bay of Plenty $126 million
Taranaki $183 million
Hawke's Bay $15 million
Manawatu $82 million
Wairarapa/Tararua $60 million
Canterbury $353 million
Otago $92 million
Southland $218 million
New Zealand $1.825 billion

*Based on $1 drop multiplied against estimated regional production.

For more information on budgeting, visit www.dairynz.co.nz/budgets