Next season will be challenging and cash will be tight

Next season will be challenging and cash will be tight

Wednesday March 23, 2015

Industry body DairyNZ is advising farmers to focus on strong cashflow management as they look ahead to the 2015-16 season following Fonterra's half-year results announcement today.

Chief executive Tim Mackle says the challenge for farmers will be working through their cashflow position for the coming season. "This season is all but over. Fonterra's Forecast Cash Payout for the 2014/15 season of $4.90 - $5 helps provide some certainty for farmers.

"What we are concerned about is that the low milk price this season coupled with a low retrospective payment this winter, about a third of what was received last year, will see many farmers dip into the red this spring. For many, they may not pop back up into the black for some time. Banks are telling us that many farmers will hit $1.50-$2/kgMS (kg of milksolids) in overdraft this September.

"Knowing those winter payments will drop in this next season will be second nature to many farmers. But the ones who have already forecasted their cashflows are surprised at how long they stay low. They are now taking steps to put strategies in place to manage those impacts. That's a bit of a wake-up call for everyone," he says.

More than 845 people attended DairyNZ's Tactics for Tight Times events held this month around the country. DairyNZ's second round of farmer events will begin in April and dates are still being finalised.

"Our case study farmers are regularly updating us on their progress and talking about tackling that volatility challenge. What are they doing to manage cashflows for their businesses? We've found there's a lot of value in sharing experience amongst farmers to help everyone get through tight times," says Tim.

DairyNZ has calculated that the average farmer needs $5.40 in income per kg/MS just to cover farm working expenses and interest and rent this season. "A lot of farmers will not have a lot of leftover income to draw upon for tax and their own living expenses with the current low forecast milk price. Around a quarter will probably have to extend their debt this financial year.

"The 2015-16 season coming poses an even bigger challenge - when lower retrospective payments start to hit in July and August this year and many more farmers have to look at putting cost-effective measures in place to avoid escalating their debt. The key point is that farmers must assess their situation and plan ahead."

DairyNZ's data shows milk production for the 2014-15 season so far, from all farmers across all dairy companies, is tracking 3 percent ahead of last year. February, however, is showing a 6 to 7 percent monthly drop in production, compared to February last year. By the end of February, generally around 80 percent of the country's milk production for a season has been collected.

"Production is dropping away quite dramatically now so we're probably looking at New Zealand's milk production ending up not far behind last year's result. Production was up 10 percent last year - so that means we'll match a season that produced a record amount of milk.

"That's a heartening result given the dry conditions we've had around the country. It's a real testament to the way farmers are running resilient systems, learning and managing well through dry summers using a range of measures like once a day milking. However, it's also sobering to see how much dry conditions cost the country and our farmers - millions in lost production. We were looking at being well ahead of last year's record production until the dry spell hit. It underscores the need to explore irrigation options in a way that meets everyone's needs," he says.

For the latest on DairyNZ Tactics for Tight Times, go to www.dairynz.co.nz/tactics

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