Dairy recovery could take five years
Waikato farmers are likely to take five years to shake off their low payout hangover.
It could be the 2020-21 milking season before an average 122ha farmer is able to repay debt incurred from the slump in dairy prices, according to DairyNZ.
Using data modelled from the dairy business information tool DairyBase, these farmers faced a $226,920 cash deficit for the 2015- 16 season. When converted to a loan on a six per cent interest rate, the farmer would have to repay $52,668 a year over the next five years, DairyNZ South Waikato regional leader Wade Bell told farmers at a focus day at St Peter’s School’s Owl Farm.
‘‘If you add that payment to the loss and have to generate that for the next five years, the average farm is going to need a milk payout of $2.25 above of what is in this budget,’’ he said.
Bell calculated that milk income to be $4.40, including the dividend for the average farm. In comparison, a same sized farm resting in the top 20 per cent of Waikato operators would have to pay $30,396 under the same scenario.
Those top farmers would need a payout lift of $1.01/kg MS. If there was a quick turnaround in the milk payout, the top 20 per cent of farmers could recover pretty quickly – in two to three years or less.
It showed the long lasting effects a low payout can have, he said.
Westpac agribusiness manager Nick Dawson told farmers that most of his customers were ‘mum and dad’ businesses who were doing it tough with the current payout.
‘‘It’s hard for many people to wear and a lot of people for the first time in their careers are not getting paid on Friday night and that’s a hard thing for a mum and dad business to absorb. We’re at the case now where we are having meetings and there are tears at the table – and not always just from me.’’
The bank’s key number was $6/kg MS, which it saw as a good, medium term payout. When these businesses were staring down the barrel of a six figure loss, the bank looked at how this impacted on their medium term viability.
In the short term, the banks were trying to minimise the financial loss from the 2015-16 season, Dawson said.
Bell’s model had the top operators running a 122ha farm, milking 375 cows and produced 160,000kg milk solids. In comparison, the average farm of the same size milked 350 cows and produced 124,000kg MS.
The average farm’s 2015-16 season’s financial performance had it producing $ 592,720 with cash expenses of $ 819,640 ($6.61/kg MS). The top 20 per cent farm had a total income of $ 796,800 and total expenses of $928,000 ($5.80/kg MS).
The top operators earned an additional 10-20 cents/kg MS of milk and 5-15 cents /kg MS in livestock sales in income. Their operating expenses were also 10 per cent lower compared to the average and achieved 30 per cent more milk solids a hectare and 15 per cent more milk solids per cow.
The top farmers used 60 per cent more imported feed and their herds ate 12 per cent more pasture and crop eaten from the farm. These farms also had a 12 per cent higher stocking rate.
Bell urged farmers to spend time now – before the season became busy with calving to identify areas where small gains could be made that could significantly shorten this payback period. There was plenty of benchmarking data available within the dairy industry.
It could save dairy farmers up to two years in recovering any lost financial ground.