Keep a tight lid on spending
Dairy farmers need to maintain their discipline around spending in the wake of a higher dairy forecast, DairyNZ director Jim van der Poel says.
While the lift in payout was cause for celebration, farmers should reflect on the past two years, he told about 230 farmers at DairyNZ’s Farmers Forum at the Lye Research Farm, on the outskirts of Hamilton.
Van der Poel and chief executive Tim Mackle opened the last of five forums across New Zealand over the past month attended by about 900 farmers.
‘‘The challenge for is us to, yes, celebrate the fact we are getting a more normal payout, celebrate the fact that we are getting a more normal forecast ... but without forgetting we are still living in a volatile space and there is still risks.
‘‘Remember the lessons from the last two or three years,’’ he said.
Fonterra announced its opening forecast for the 2017-18 season of $6.50 a kilogram of milk solids on May 24 and lifted the forecast for this 2016-17 season by 15 cents to $6.15/kg.
In late April, Open Country Dairy announced an opening forecast for the new milking season of $6.25-$6.55/kg.
The new milk price at $6.50/kg had returned to a more ‘‘normal’’ level since two years ago compared with the long term average of $6.04/kg over the past several years, van der Poel said.
In the 2013-14 season, the average break even price for farmers to run their farm, service debt and pay taxes was $6.35/kg.
‘‘Last season the average break even price was $4.93/kg. That’s $1.42/kg less to do the same job that it took us three or four years back,’’ he said.
The forecast lift could result in expectations that costs would lift as well.
‘‘The challenge to the industry was to maintain its spending discipline. What we know is that this is a volatile world that we live in. Milk prices come and go and next year’s $6.50/kg forecast is good news for all of us, but one thing we can be absolutely sure of, is that next year the milk price won’t be $6.50/kg.’’
That price could be higher or lower, van der Poel said.
‘‘This early in the season, it’s the best guess estimate and no product has been sold and it’s an estimate of what the market will do.’’
DairyNZ principal scientist John Roche said it was obviously important to grow grass and put fertiliser on, but farmers had to be careful they didn’t let their costs skyrocket.
‘‘Almost 60 per cent of a farmer’s costs are cow costs. There are vets visits, AI [artificial insemination] costs and more. Although we have costs to run a farm, a huge amount is associated with a cow.’’
He said if farmers were buying outside feed, then they needed to know that it was needed by their herds.
‘‘We have people out there telling farmers cows need an alternative to grass.
‘‘If they have enough grass, that’s all they need. And to say they need alternatives is misleading and generally untrue.’’
Off-farm supplements could not replace pasture in a profitable dairy farming system, said Roche.
Keeping a lid on costs was vital, so farmers had a buffer for their business.
‘‘Beware of little expenses. There is a saying, by Benjamin Franklin, which says a small leak can sink a big ship.’’