A good time to reduce debt
Ahigher payout to dairy farmers this season should see them able to pay back some losses, say banks.
After three poor payout seasons many dairy farmers have built up debt and were unable to make ends meet with costs larger than the milk payout.
Rabobank’s Feilding manager, Asti Williamson said how much debt they had, depended on each individual farmer.
‘‘But if Fonterra keeps to it $6.75 per kilogram of milksolids(kg/ms) payout, as well as the dividend, and with the sale of livestock,
Farms have been tied down tight with lower costs a real focus. This season they might need to spend on the farm, their staff and repaying debt built up over the last two to three seasons, as well as paying themselves Westpac agribusiness manager Dave Hutchison
farmers should be in a positive situation.’’
Dairy farmers had debt of about $22 per kg/ms, but some carried a lot of debt, and some had little or none.
Agribusiness manager at Westpac, based in Palmerston North, Dave Hutchison said dairy farmers should be able to pay back some debt this season. ’’Their cash flow has improved, and their working capital and overdraft facilities are looking more favourable.’’
He said many farmers had deferred repairs and maintenance to catch up on. ’’Things like water supply and races have been left. They will need to have money spent on them.’’
Farmers that could not put fertiliser on last year are expected to put more on this year as a result.
‘‘Farms have been tied down tight with lower costs a real focus. This season they might need to spend on the farm, their staff and repaying debt built up over the last two to three seasons, as well as paying themselves,’’ said Hutchison.
Williamson said a farm producing 100,000kg of milk solids should have a cash surplus of about $1/kgms which would allow them to do much needed repairs and maintenance and still pay off some debt.
‘‘Every farm will be different but with feed and costs remaining the same [as forecasted by analysts] hopefully they’ll be in a position to pay the bank back some money.’’
He said farmers were feeling better about their farm budgets. ’’They are grumpy about the rain. Given the increase in payout, I suppose they have the head-space that allows them to think about the weather.’’
Pasture has been slower growing than expected, and the rain means some cows are calving in mud, and paddocks next round might show damage.
Farmers are concerned that muddy gateways and slow pasture growth has put pressure on cows and staff as well as themselves. ‘‘The challenge for many dairy farmers will not be this feed round, but the next one,’’ said Williamson