Cash flow is king
Cash flow budgeting is going to be critical for dairy farmers in the coming season.
AgFirst economist Phil Journeaux, in his annual financial survey of dairy farmers in these regions, says while the good news of Fonterra’s $7/kgMS forecast payout is welcome, this is overshadowed by Mycoplasma bovis.
M. bovis has been a huge jolt to the industry and farmers are concerned about how they might manage it and biosecurity in general. He notes that farmers are using AB where possible and not using service bulls.
“They are looking at double fencing or the use of outriggers along their boundaries and being very cautious about rearing extra calves. Most are now very careful about NAIT and tagging and tracing stock movements.”
Also dampening dairy farmer confidence is the “ever-increasing compliance issues and cost”.
The report notes that net cash income for dairy farmers in the two regions for the past season rose 24% to $901,901 despite their lower milk solids production, though this is expected to rise in the current season. The weather caused this production fall in a climate season of two halves.
Farm working expenses were higher than in the previous season, says Journeaux.
“Expenses are now at what I would call full maintenance level and you are seeing farmers spending more on capital items [they need] such as effluent systems and cooling systems for vats.
“They are having to pay more tax and are starting to pay back a lot of debt. Remember when we had the $3.90 payout, farmers had to borrow about $130,000, part of which was a Fonterra loan and the rest was from the bank.”
He says assuming a $7/kgMS payout this season, farmers will have repaid that debt, having taken three years to get back to square one.
The report notes that, on average, farmers are planning this season to slightly drop their stocking rate as they more closely watch per cow production; this is related to reducing environmental impacts.
“There is a subtle trend and I can’t see the stocking rate reducing significantly.
“We don’t see the mood for expansion that we saw some years ago. They are now saying, ‘well, I have my farm and I will do my best on that and not worry about buying the neighbour’s place 10km down the road’.”
