17 Jan 2017
Taranaki Daily News, New Plymouth Taranaki
Section: General News • Article type : News Item • Classification : Provincial
Audience : 16,317 • Page: 14 • Printed Size: 298.00cm² • Market: NZ
Country: New Zealand • Words: 456 • Item ID: 714172556
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Grow profits over production
Financial
W
ruminations
with BDO's team of rural experts
ith global dairy
prices on the
rise again,
dairy farmers
have let out a
small sigh of
relief but the year ahead is one of
recovery and continuation of
lessons learnt.
The downturn has reminded
farmers that efficient, low-cost,
pasture-based farm systems are
where they make money – and
that’s the best way forward.
With the projected 2016/17 milk
price of $6 per kilogram of
milksolids from Fonterra, as at
January 2017, farmers have only
received a forecast $4.15 payout for
the milk supplied to date – just
$1/kg ahead of last year at the
same time. So, it’s still a long road
ahead to get any overdue farm
maintenance done and paid for, as
well as reduce overdraft levels to a
operator spending on feed (made,
purchased and cropped) fell by 17.2
per cent, with production
declining 8.3 per cent – though this
is more to do with the drought that
hit parts of Taranaki in summer
2016.
Farmers have also learnt to be
far more disciplined and lean with
budgets and cashflows and to truly
more comfortable level.
For most farmers, it needs to
remembered that any increase in
milk price above $6/kg will be
repaying support loans so will not
turn into cash.
It’s a year of steady recovery.
We’re seeing farmers return to a
focus on good pasture
management, maximising
conversion of grass to milk while
minimising expenses to increase
profit, rather than focusing on
boosting production through
cashflow plans will facilitate good
conversations.
Ultimately, the wake-up call of
the downturn has got farmers
thinking differently about their
systems.
And, as the year plays out and
milk prices rise, and inevitably
production costs too – the best way
forward is to retain that business
thinking of how to ‘maximise my
profit’, not necessarily my
production, with a system that is
resilient to low milk prices and
can still take advantage of higher
prices.
buying in feed – which has been
the trend.
In Taranaki, early DairyBase
benchmarks indicate owner
understand their break-even
points and cashflow requirements
through different times of the year.
In the last year, we’ve trebled the
number of budgets and cashflows
we’ve done for our rural clients
which indicates this change in
thinking.
This is good news for their bank
managers. Most farmers will be
aware they need to pay back some
of the debt accrued over the last
couple of years, so having lean and
comprehensive budgets and
❚ BDO Taranaki specialises in rural
business advisory services and its rural
experts write a monthly column on
financial issues affecting farmers. An
independent member of the BDO NZ
accounting network, BDO Taranaki’s
Principal Mark Irving is Dairy Head of
BDO NZ’s Agribusiness Sector Group.