Chief executive Tim Mackle says DairyNZ had already been working on boosting its Tactics for Tight Times campaign to help farmers cope with what is likely to be a “very tough and grim season”.
“By our calculations, this forecast will translate into an average farmer’s milk income dropping by $150,000 for this next season. We’ve worked out that the breakeven milk price for the average farmer now going forward is $5.70 kgMS, yet under this forecast scenario they’ll only be receiving $4.75 all up in terms of farm income including retro payments from last season and dividends. Annual farm working expenses will need to be reduced to minimise increasing debt levels further. The flow-on impacts to the local economy will be significant as that money gets spent on things like feed, fertiliser, repairs and maintenance items. There will also be less capital spending in our sector.
“We will see most farmers facing significant negative cashflows for much of the next 12 months leading to an increase in debt and overdraft expenses to get their businesses through another low milk price season. What we need to do is provide advice and wrap support around our farmers to help them cope with all the decisions they will have to make. We don’t know when milk prices will pick up so we planning for the worst but hoping for the best,” he says.
“This will be the lowest milk payment farmers will get until Christmas since 2006-07. This is going to be a challenging season for a lot of farmers but it’s also an opportunity to strengthen the resilience of our industry if we can use it to become more efficient in how we farm.
“Ultimately this kind of challenge could make us more competitive if we use it to drive efficiency throughout our businesses.
“Many of our farmers have coped with low milk prices in the past, and so this isn’t new for a lot of people, or even that unexpected given where global milk prices have been heading. Farmers have been preparing for the worst case scenario - and this is pretty much it - so now it’s a matter of everyone pulling together to cope with it. We’ll particularly need to support those farmers who have just bought farms or who are first year sharemilkers as they will have more debt to manage. Lower order sharemilkers are also under immense pressure as they have little wriggle room.”
Mr Mackle says DairyNZ will be shifting its Tactics for Tight Times campaign to a seasonal calendar of advice on “farming fundamentals” that will look to give farmers targeted advice on key decisions. “We want to give them the right advice at the right time when they will be making the big calls. We’ll be working with our case study farmers and other farmers to help shape that support and share tips and tactics around the regions on getting through a low milk price cycle,” he says.
He says DairyNZ’s whole farm assessment approach will be used to map out where a farmer can make the most cost-efficient gains on their farm. “This kind of thinking helps customise actions to an individual farmer’s particular situation. It’s a good way of working out how you can take costs out of your farming system in the short term without affecting your long term plan or profitability too much.
“We’ve been planning to run this ramped up support approach for at least the next 18 months. We know that the payments farmers will get through the winter will be particularly low and that’s why we’ve been pushing everyone to do a cashflow budget. Farmers have got to know their situation if they are going to develop a plan to cope with it. You’ve got to know how low you will go and how long you will stay there.
“This is really about keeping things in perspective too. Farmers will be looking for help to make smart choices. It can be hard to think straight and make good decisions if you are under stress and pressure. We’ll be bringing all our industry together - the rural support trusts, the banks, the Dairy Women’s Network and others - to ensure this is a co-ordinated effort. We need an industry safety net around our farmers to look after their mental wellbeing too,” says Mr Mackle.
Note to editors: Graph of the forecast cashflow for the average NZ dairy farmer for 2015-16 attached below.
Cashflows drop steadily throughout winter stabilising at negative levels for the rest of the season - i.e. no ability to reduce overdrafts in the season. This will mean the impacts of the low milk prices in 2014-15 and 2015-16 will be felt for a couple seasons as farmers will be required to repay the additional borrowings/overdraft.
Dividend and livestock sales help stabilise cashflows in October and at the end of the season.
- The graph shows the closing monthly bank balance for an average farm in the 2015-16 season with the assumption it starts at zero dollars.
- The cash income includes milk sales (including retrospective payments from 2014-15, the monthly advance, including capacity adjustment and anticipated dividends to end of May 2016), net livestock sales and other dairy cash income.
- All cash expenditure relating to the dairy business is included, such as farm working expenses, interest and rent, tax, drawings and capital expenditure.
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