Tuesday, 02 August 2016 12:51

Break-even cost pared back, says DairyNZ

Written by 
DairyNZ chief executive Tim Mackle. DairyNZ chief executive Tim Mackle.

Industry body DairyNZ says the increased dividend and the maintained $4.25/kgMS farmgate milk price from Fonterra is some good news for farmers with shares.

But another positive is also emerging – New Zealand dairy farmers have sharpened their systems and reduced costs through this sustained low milk price period.

DairyNZ chief executive Tim Mackle says while the milk price will continue to keep pressure on farmers this season, the industry's performance in cost-cutting on-farm means break-even costs have been reduced.

"We've revised our break-even milk income required for the average farmer in 2016/17 to $5.05/kgMS," says Mackle. "It was $5.25/kgMS for 2015/16 and $5.77 in 2014/15."

The break-even cash price includes farm working expenses (excluding adjustments for unpaid management and depreciation), interest and rent, tax and drawings; and nets off livestock and other income received.

"The reduced milk price has meant farmers have really fine-tuned their management and analysed their costs of production. This should bring the average farm working expenses back to an anticipated $3.55/kgMS this season, the lowest level since 2009/10."

Farm working expenses were sitting at $4.07/kgMS in 2014/15, so the reduction has been equivalent to around $100,000 per farm, on average.

Mackle says reducing the break-even price is tremendous recognition for New Zealand dairy farmers and the resilience they have shown.

"Being able to reduce the break-even milk price tells us that dairy farmers have cut costs further than we thought. This cost control is resulting in more efficient dairy businesses, which is key to resilience."

Despite the $5.05/kgMS break-even milk income required for the average farmer, under the current forecast farmers will receive around $4.50/kgMS all up in terms of milk income, including retro payments from last season and dividends (including the lift in dividend announced yesterday).

"Obviously there is still a shortfall there – and while there are farmers operating above that $5.05 level, there are many with break-even incomes below that too. But a $4.50 income and reduced farm working expenses means farmers won't need to borrow quite as much," says Mackle. "But let's be clear, this is still very tough for our farmers as it's been a sustained period of low milk price.

"Every farm runs a slightly different system, with different costs and needs. Many will have been through the process of fine-tuning their budgets, but maintaining that momentum and always looking for efficiency opportunities is key."

More like this

Strong uptake of good wintering practices

DairyNZ has seen a significant increase in the number of farmers improving their wintering practices, which results in a higher standard of animal care and environmental protection.

Fonterra trims board size

Fonterra’s board has been reduced to nine - comprising six farmer-elected and three appointed directors.

Returns 'not good enough'

Fonterra leaders are making their case for offloading the co-operative's $3 billion consumer business, noting that its return on capital has been nowhere near respectable.

Record milk price!

A record farmgate milk price for Fonterra shareholders is all but confirmed for this season.

Featured

Massey Research Field Day attracts huge interest

More than 200 people turned out on Thursday, November 21 to see what progress has been made on one of NZ's biggest and most comprehensive agriculture research programmes on regenerative agriculture.

Expo set to wow again

Stellar speakers, top-notch trade sites, innovation, technology and connections are all on offer at the 2025 East Coast Farming Expo being once again hosted in Wairoa in February.

A year of global challenges

As a guest of the Italian Trade Association, Rural News Group Machinery Editor Mark Daniel took the opportunity to make an early November dash to Bologna to the 46th EIMA exhibition.

National

OSPRI's costly software upgrade

Animal disease management agency OSPRI has announced sweeping governance changes as it seeks to recover from the expensive failure of…

Machinery & Products

BA Pumps expand

Cambridge based BA Pumps & Sprayers, specialists in New Zealand-made spraying equipment, has acquired Tokoroa Engineering’s product range, including the…

Entries open for innovation award

Fieldays and its renowned Innovation Awards are celebrating their 57th year, marking a longstanding tradition in the agricultural calendar, with…

» Latest Print Issues Online

Milking It

Chinese strategy

OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.

Not fair

OPINION: The Listener's latest piece on winter grazing among Southland dairy farmers leaves much to be desired.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter