It's The Margins That Matter
OPINION: It appears to be difficult for people who haven’t tried to run a business to understand the difference between assets and cash.
He told Dairy News it’s going to be a challenging season, likely extending well beyond this time next year because retrospective payments will be low. He says many dairy farmers will never have experienced a situation where the payout has gone from such a high to a massive low.
DairyNZ’s forecasts that most dairy farmers will be in overdraft for all next season and beyond resonates with his own situation, he says.
“For next season we had done our budgets on the basis of a $4.70 payout and based on that we were able to get through next season budgeting on what we guessed was a $5.50 final payout. That got us through without any borrowing, having looked at various things to cut and at management strategies for how we were going to change things. But when we did the budget after they took 20 cents off the payout, that effectively meant for us $57,000 out of the budget in the coming spring and added a lot more complexity to it. Obviously we will need to get short term borrowing or look at other options for reducing costs. It changes things for us and it makes next season even more challenging than it already was.”
Hoggard says at the start of the current season farmers received some large retrospective payments which helped their balance sheets. But this won’t happen later this year and that’s when the pain will hit. He says a lot of people believe things might come right towards the end of the new season, but he says the market is so volatile that anything could change overnight.
Many farmers new to the industry haven’t experienced sustained financial problems like those that exist at present, he says.
He recalls that as a young single sharemilker he lived on baked beans and worked hard when the payout was at a low of $2.70. But now he has a young family whose expectations are not geared to the tough times ahead.
