Dairy sector profit still on the table, but margin gap tightens
DairyNZ’s latest Econ Tracker update shows most farms will still finish the season in a positive position, although the gap has narrowed compared with early season expectations.
DNZ has created a new online resource detailing the financial spending of top performing dairy farms. This is to help farmers cope with lower milk prices and set the industry up for a speedy recovery.
Economic modelling shows if farmers can curb their loss by up to $1/kgMS this season they could recover from the low milk price three-four years faster.
General manager R&D David McCall urges they spend on the right things and keep good budgetary control of costs.
“This is where we can learn from the best, so we’ve created new online information to help show farmers where to prioritise spending and how to make savings.
“Dairy farmers have asked us for more practical and specific data on which to benchmark themselves; we have listened to that feedback.
“We’ve assembled in-depth budgets from top performing farms with less than $3.50/kgMS cost of production…. Many of these farmers have learnt lessons from past downturns. We’ve ‘bottled’ that experience by creating a new online benchmarking tool that will enable dairy farmers to identify areas for improvement.
“The information will show where and how these guys get the most from their dollar. It is more than just the broad spend but a drill down into the detail.”
DNZ estimates the average NZ farm will lose $150,000-200,000 at the current forecast payout for 2015-16. The average farmer could take a few years to repay this loss. The top 20% farmer would be able to recover much sooner.
This illustrates the importance of challenging your budget to improve your business, says McCall.
“Any savings or efficiencies will mean less money going into debt and consequently interest payments.
“Reviewing your budget on a line-by-line basis is a good first step, especially at the start of the calving period. The logic is to ask the question about each line and the consequences of any action. Do I retain the expense, can I reduce it, can I defer it (say to next year) or can I remove it? Fertiliser, for example, is a big ticket item that can be reduced on many farms.”
