Listen: M. bovis - Trust will be 'a new form of currency'

There is no doubt that Mycoplasma bovis has been devastating for the rural community, but is there a silver lining to this situation?

Rabobank's dairy analyst Emma Higgins spoke to The Country's Jamie Mackay about Mycoplasma bovis, saying a couple of opportunities may present themselves due to the cattle disease.

Higgins says the Government has made a "very ambitious and bold call" to undertake a phased eradication of M. bovis but that "we need to just get on with it and the task at hand."

Higgins says there is a silver lining for farmers not immediately impacted by M. bovis.

As it is shaping up to be another good season ahead for dairy commodity prices, (and therefore farmgate milk prices), it puts farmers in a position to choose where to direct improved cash flows and shape their business over the coming years.

While biosecurity risk mitigation on farm will add costs, at least it is a good season to "get the house in order," says Higgins, who suggests some larger farms may look into additional support blocks and a more closed operation.

There could be an opportunity for dry stock farmers as well says Higgins.

The eradication plan puts drystock farmers at the most risk and it is uncertain how graziers, (who typically have businesses models set up to provide support for the dairy industry), will be compensated.

However, there could be a premium attached to land/stock that can prove tight biosecurity practices and show clear voluntary tests free of M. Bovis says Higgins, who predicts that trusted relationships between dairy farmers and graziers will be "a new form of currency".

Mycoplasma bovis' immediate impact on milk production is expected to be limited. 150k cows is just over 2 per cent of New Zealand's dairy cattle (including young stock) says Higgins.

While eradicating 150k cows won't significantly shift the national milk production needle immediately, regional production will be impacted in Canterbury and Southland given this is where most of the infected herds are to date.

Another important detail is that farmers have some input into the timing of when infected herds will be culled, say Higgins, which has the potential to help cash flows.

While the finer details are yet to emerge, Higgins believes this is likely to give farmers the choice to keep milking over the new season and buys some time to line up a plan of action once the herd has gone.

- 126k cows will be culled at some point over the next two years. This is in addition to the 23k already culled.

- It is likely there will be a wave of farms identified as infected over the coming months as we move through some of the more stressful periods of the season.

- When a herd is found to be infected going forward, the whole herd will be culled. As such, biosecurity needs to be front and centre of farm business strategies.

- There could be a material impact on milk production if there is a significant increase in the number of farms that are identified as infected over the coming 6 months. This is entirely possible, given how hard it is to test for the disease.

- Given the number of cattle to be culled represents approximately only 5 per cent of New Zealand's annual beef slaughter (2.4m cattle were slaughtered in 2016/17, plus 1.8m bobby veal), and the cull is occurring over a prolonged period of time, it is unlikely that we will see a significant impact on the beef schedule; however, this could change if the timing of the bulk of the cows being culled was compounded with either seasonal influx from the beef industry or adverse weather conditions. The cull is likely to have some impact on killing space, at times prolonging waiting times to get stock killed (particularly in the South Island).

- The long-term implications are more significant given that whole herds are begin culled, effectively removing a second generation of stock and adds to the headwinds of production growth for New Zealand's dairy industry.

- We could see regionalised inflation for replacement stock in hard-hit infected areas. But the flipside to this is plummeting values for finishing stock for the beef sector that originates from the dairy industry. As we have noted previously, drystock farmers are at most risk under a plan to eradicate for the disease and it is uncertain how graziers, who typically have businesses models set up to provide support for the dairy industry, will be compensated.

- Wintering off practices are likely to come under increased scrutiny to minimise reliance on third parties. Those who have the scale and strong balance sheets may look to secure additional land to obtain self-sufficiency. While this isn't an option for everyone, large scale farmers, particularly in regions with increasing environmental constraints, could see this as an option to mitigate risk on two fronts.