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DESPITE A favourable winter and early spring, this season’s lower forecast milk price shows how quickly things can change. Farm budgets are vital, says DairyNZ economist Angie Fisher.
Uncertainty about the final payout is nothing new for New Zealand dairy farmers. Many commentators and farmers are discussing and speculating what the final 2014-15 payout will be.
But the 2015-16 milk price is also on many farmers’ minds, as is the impact a second year of low milk prices could have on 2015 income, particularly during winter with low retrospective payments.
“Knowing your liquidity from now until the end of the season can help give peace of mind and control over the situation, as you plan to monitor cash and production targets,” says Fisher.
An updated 2014-15 monthly cashflow budget will show where action may be required and an annual 2015-16 cash budget will highlight risk areas for the business and spark ideas for action onfarm.
Plot cashflow from now until the end of May by updating or starting a new budget.
DairyNZ has a budget template which works from a one-page annual cash budget to a monthly cashflow.
Plan income and spending through summer and autumn, and consider options necessary if the summer is dry – feed budgets, fertiliser, repairs and maintenance, development onfarm and so on.
Autumn and winter 2015 could be tight, especially if next season’s payout is below $6/kgMS. Get ahead of the game
and calculate cash income and expenses for 2015-16, with an annual cash budget.
Milk prices and the weather are beyond anyone’s control, but minimising risks and looking at farm working expenses can mean a 5-10% change which will affect the bottom line.
Whatever budgeting template is used, farmers should test a few milk price scenarios for 2015-16. This gives confidence and alleviates some stress and uncertainty. It also helps to know what you are facing before you approach the accountant, farm consultant and banker.
Milk price isn’t a sure thing until after the season is complete, but having an idea about the long-term break-even payout, what needs to be covered this season and the business’s cashflow pattern are all part of longer term risk management.
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