From the Lip: My most valuable stock unit

A recent conversation with a sheep farming mate of mine about the current plight of the dairy industry resulted in me reflecting positively on the bad old days of sheep farming in the 1980s.

My friend was somewhat surprised when I declared, off the top of my head, that even during the lows of Rogernomics we never ran our farm at a loss. This is in stark contrast to some dairy farmers who this season will run at a $300,000-plus loss per annum.

So I went back through some old annual accounts from 30 years ago to check I wasn't looking back at farming through rose-tinted spectacles. Those annual accounts for the year ended 30 June, 1986 made for very interesting, if somewhat sobering, reading.

The 1986 financial year was the last one I farmed in partnership with my younger brother Don. Because he stayed at home and did the hard yards while I swanned about at university, it was only right that he got to stay on the home farm. He ended up with a much better farm as the block we jointly bought for me needed some serious money spent to develop it.

So 1986 proved to be a very challenging one financially, climatically and politically for two young farmers on their lonesome, aged just 25 and 26 respectively. In northern Southland we suffered the triple-whammy of low prices, a dry spell exacerbated by a grass grub invasion and a prolonged freezing works strike which meant we were unable to get lambs killed for seven weeks in the key autumn period.

That was reflected in our average lamb price for the season, a pathetically low $15.62 per head. Admittedly that did not include some live shipment long-tailed lambs sold per head in late June for $25, but there was a real cost to keeping them that late into the season. Incidentally, I looked back either side of the 1986 financial year at average lamb prices and 1985 came in at $23.90, while 1987 netted $23.60. There may have been pool payments over and above that but they weren't significant.

Our gross farm income for the 1986 year was $150,000, down more than $30,000 from the 1985 financial year. Interestingly, over half of that $150,000 gross farm income came from wool - $80,000 at an average $3-14 per kg. Our saving grace came from 47 cattle sold at $425 per head, which added a much-needed $20,000 to the coffers, even though we'd effectively wintered them at a loss!

Our net farm profit, after paying $60,000 in interest and a small fortune in capital fertilizer, was $6,683, of which half was mine. My annual personal drawings were a paltry $6,745. But before I get the violin out I have to say that was supplemented by moonlighting on the handpiece, some cash wool sales which I've conveniently forgotten about and $26,000 from my most valuable stock unit, my wife Penny, who brought in a full-time teaching salary.

Interestingly in the 1987 financial year, after Don and I split our partnership, my own net farm profit was $9,012 followed by $8793 in 1988 and just over $18,000 in 1989. I was living the dream but still trailing, by the length of the straight, my wife in the earnings stakes!

The whole point of this retrospective exercise was to confirm or deny whether my vague recollection of always being in the black during the dark old days of Rogernomics was actually true. Effectively it was, although we were lucky to have our mortgage rates capped by the Rural Bank at 9% and a good off-farm income.

If I had to face the mortgage music at 22% or had three kids, a wife at home and no off-farm income, I'd probably have either gone broke or become a very good shearer!

Thirty years on, many dairy farmers, equity partners and sharemilkers face a similar plight. But many factors are in their favour this time round. Interest rates are at an historic low and land prices are ten-fold that of 1986, meaning those with reasonable equity will always survive. Our banking system is more mature and competitive and we're well and truly over cutting the umbilical cord of farm subsidies, a real blight of the 1980s.

Most importantly farming is no longer regarded as a sunset industry and even the most pessimistic of commentators agree the dairy industry will return to profitability. The $64,000 question is when?