The decreased forecast milk price alongside significantly higher on-farm costs will be a shock that sees many farmers take a more cautious approach with finances this season.
“A decrease in forecast milk prices of this amount, if it eventuates, will see farmers reducing on-farm spending - creating flow on implications for the wider New Zealand economy,” says DairyNZ general manager of Farm Performance, Sarah Speight.
“The dairy sector has been here before and made it through. With the right approach, we can do it again – and DairyNZ will be working closely with all our farmers to manage their finances to remain viable this season.”
Before this latest Fonterra announcement, DairyNZ’s 2023/24 forecast for net cash income was $8.78kg/MS and estimated total expenses were on average around $8.72 kg/MS for the same season.
“Considering this downward adjustment to the forecast milk price, if costs were to stay this high, there is a risk of significant cash loss for many dairy farmers,” says Sarah.
“This isn’t the first time there has been large milk price forecast decreases, and we know from experience that farmers rein in their expenditure, to minimise cash losses.”
Dairy sector debt has also decreased by $5.4 billion, from $41.7 billion in 2018 to $36.3 billion in 2023, putting farmers in a better financial position.
There are a few key things that farmers can consider, to help manage their farm businesses during the current economic climate.
“With a reduced milk price forecast, now is the time to look line-by-line at where spending can be decreased and pause non-essential capital projects. However, changes need to be well thought through and not have long-term effects on profit, or the wellbeing of your people or animals,” says Sarah.
“We encourage farmers to communicate with their on-farm teams and understand the impacts of the payout drop on the whole farm system, alongside discussions with their banker, accountant and other advisors to plan for the season.”
Farmers are also encouraged to connect with their farm teams and neighbours, as the announcement comes at a busy and exhausting time of year, in the middle of calving and winter conditions.
“Dairy farmers are known for their resilience, but that doesn’t make coping during challenging times any easier,” says Sarah.
“The current combinations of conditions will be difficult for many, so we encourage farmers to reach out if they need help, including to Rural Support Trust on 0800 787 254.”
Farmers can also reach out to their DairyNZ regional team or go online to dairynz.co.nz/budgeting for more information.
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