Farmers' bank balances under severe pressure

Farmers' bank balances under severe pressure

Friday 17 April 2015

Industry body DairyNZ says bank balances for most dairy farmers will be heading south this winter and spring, producing some short-term but significant cashflow management challenges for farmers.

DairyNZ chief executive Tim Mackle says 2015-16 will still probably end up being a breakeven year for most farmers but cashflow will be a major issue that could result in some increased term debt in the sector and less spending in the regions.

"Farmers are used to having seasonal cashflow that drops into the red but then pops back into the black at some stage during the summer period. However, our current forecasts indicate that many farmers won't be in credit for the entire 12 months of next season unless costs are reduced, income is higher than predicted or some of their overdraft is put into their term debt."

A second series of nationwide farmer events in DairyNZ's Tactics for Tight Times campaign gets underway next week. The focus is on giving farmers the wake-up call to assess their own situation given the low forecasts.

"We will be helping farmers to understand how low their own cashflows might go for the 2015-16 season, and more significantly how long they might stay there. We've analysed what it's like for the average farmer in every dairying region and plotted that on a graph. It's not looking pretty. We think that will create a lot of discussion and result in farmers taking some action to manage their way through the season. We'll also be running cashflow events this winter."

Dr Mackle says while the long term prospects for the industry are still positive, farmers have to remain competitive in a global exporting business where New Zealand's market share could be eroded by other competitors.

"We're in a strong position as an industry because we have scale and strength as a competitive producer and exporter of high quality dairy products. There's still growing demand for our product and the supply-demand equation will eventually improve. But the landscape internationally is also changing with EU quotas coming off and the US steadily gearing up to produce more milk, potentially for export.

"My message to farmers is that resilience is needed so that farmers can cope effectively with the trough in milk prices after the record payment we had in 2013/14. If you haven't already worked through the numbers, it's time to think about setting yourself up to manage through another breakeven season in 2015/16 and look at what will make your business resilient in the longer term if lower prices stay low for longer," he says.

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