Dairy re­cov­ery could take five years

South Waikato News - - RURAL DELIVERY / NGA¯ KO¯RERO TAIWHENUA -

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.

It could take as long as five years for some farm­ers to re­cover from the slump in dairy prices, ac­cord­ing to DairyNZ.

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