NZ: Dairy Farmers Face Another Challenging Financial Year with Cautious Optimism
Source: The DairyNews
The 2024-2025 dairy season is poised to be another year of stringent financial management for dairy farmers, as indicated by AgFirst’s annual financial survey. Presented by agricultural economist Phil Journeaux at Mystery Creek to an audience of about 100 industry professionals and farmers, the survey projects a continuation of last year's financial trends.
Despite a slight increase in forecasted payouts, the costs and interest rates remain elevated, influencing the economic landscape for dairy farmers. The previous season saw farms operating at a loss on the farming side, with profits largely driven by the investment component, particularly dividends and capital payments from Fonterra.
For the current season, Journeaux anticipates similar challenges. "The investment business is expected to carry the whole business again this year," he noted, highlighting the small cash surplus available for reinvestment. The survey predicts a necessary payout of $8.31 per kilogram of milksolids (kg MS) for farmers to break even, taking into account essential expenses such as farm working expenses, interest, depreciation, and tax.
The budget for this season is calculated with an expectation of a $7.92/kg MS payment within the season, despite the forecasted payout of $8/kg MS. Additional costs, including principal debt repayments and capital purchases, require farmers to secure approximately $9/kg MS to fully cover operational needs.
The financial model used in the survey encompasses data from 24 farms in the Waikato and Bay of Plenty regions, reflecting a typical 133-hectare farm with 367 cows producing 140,556 kg MS. Both the banking sector and futures market are more optimistic, predicting an $8.50/kg MS payout. If this prediction holds, and with an anticipated 30-40 cents of this payout realized within the year, farms could approach a break-even point.
Another variable that could significantly impact financial outcomes is interest rates. Currently budgeted similarly to last year at $1.83/kg MS, a reduction in interest rates could substantially lower debt servicing costs, with a 1% decrease potentially reducing break-even costs by 20 cents/kg MS. Journeaux suggests that a 2-3% cut could alleviate an additional 40-60 cents off the break-even price, enhancing the financial standing of dairy operations.
Despite the economic pressures, farm conditions are generally favorable, with good pasture covers and cow health heading into the season. Most farms have ample supplies of supplementary feed, and a projected 2% increase in production fuels a moderate sense of optimism among farmers. Journeaux summarized the sentiment in the sector: “We’re not wildly optimistic but we’re not down in the dumps either.”
For the current season, Journeaux anticipates similar challenges. "The investment business is expected to carry the whole business again this year," he noted, highlighting the small cash surplus available for reinvestment. The survey predicts a necessary payout of $8.31 per kilogram of milksolids (kg MS) for farmers to break even, taking into account essential expenses such as farm working expenses, interest, depreciation, and tax.
The budget for this season is calculated with an expectation of a $7.92/kg MS payment within the season, despite the forecasted payout of $8/kg MS. Additional costs, including principal debt repayments and capital purchases, require farmers to secure approximately $9/kg MS to fully cover operational needs.
The financial model used in the survey encompasses data from 24 farms in the Waikato and Bay of Plenty regions, reflecting a typical 133-hectare farm with 367 cows producing 140,556 kg MS. Both the banking sector and futures market are more optimistic, predicting an $8.50/kg MS payout. If this prediction holds, and with an anticipated 30-40 cents of this payout realized within the year, farms could approach a break-even point.
Another variable that could significantly impact financial outcomes is interest rates. Currently budgeted similarly to last year at $1.83/kg MS, a reduction in interest rates could substantially lower debt servicing costs, with a 1% decrease potentially reducing break-even costs by 20 cents/kg MS. Journeaux suggests that a 2-3% cut could alleviate an additional 40-60 cents off the break-even price, enhancing the financial standing of dairy operations.
Despite the economic pressures, farm conditions are generally favorable, with good pasture covers and cow health heading into the season. Most farms have ample supplies of supplementary feed, and a projected 2% increase in production fuels a moderate sense of optimism among farmers. Journeaux summarized the sentiment in the sector: “We’re not wildly optimistic but we’re not down in the dumps either.”
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