A drop in forecast dairy payments will impact the economics of rural communities, Federated Farmers warns.
'Given half of what farmers get paid is spent locally, this will impact the towns but the cities are not immune,” says Andrew Hoggard, Federated Farmers Dairy chair.
File photo.
Fonterra's forecast milk price for the current season has been reduced from $7 to $6 per kgMS although the dairy giant is still forecasting a pay-out for the 2013/14 season of $8.40 kg/MS.
'It is not all doom and gloom as we are confident the pay-out will progressively lift as the season unfolds. Rabobank expects the first half we're currently in will remain flat, but some price recovery should kick in towards the end of this year and into 2015,” says Andrew.
'This is not the death of dairying and nor is it anything to do with food scares either. It simply reflects a near perfect production season in Australasia, North America and Europe.” In light of the reduced forecast, dairy farmers should pay close attention to farm costs this season, says industry body DairyNZ.
DairyNZ economists estimate the reduced pay out could cut national income by $1.8 billion this dairy season – an average per farm loss of about $150,000 (based on 2013/14 milk production).
DairyNZ chief executive Tim Mackle says for many farmers, $6 per kgMS is a break-even pay out, meaning little capital expenditure or principal payments will take place in 2014/15.
'While it is unclear where prices could be at the end of the season, volatility requires farmers to be prepared to react to changes quickly,” says Tim. 'Now is obviously a good time to look at updating or developing a cash flow budget based on a $6 per kgMS milk price.
'Look at where the fat can be trimmed and where efficiency gains can be made, for instance growing and utilising more home grown feed and looking at where supplementary feed can be reduced.”
Farmers should also look at what contingency plans are in place for a possible dry summer – perhaps early culling and once-a-day milking, rather than supplementary feed. And with large tax bills looming from last year's record season, farmers should also contact their accountant to re-calculate their tax.
For more information on budgeting, click here.
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