Milk price welcome boost for the farmer

Dairy cows going on to a rotary platform in a milking shed.

DairyNZ has welcomed the increased forecast milk price announced recently as a boost to dairy farmers as well as the regional and national economies.

The increase of 75 cents brings Fonterra's 2016/17 forecast farmgate milk price to $6/kg milksolids (MS) - a lift of $1.75/kg MS since the start of the season, which brings a boost for average dairy farmer revenue of $260,000 or $3 billion nationally.

The 75 cent increase equates to a $1.3 billion lift in the value of this season's milk production.

DairyNZ chief executive Tim Mackle says it is great news for farmers and nice to see the dairy industry could provide a boost at a time when the recent earthquake might impact tourism in the short-term.

"It's good if both industries are doing well together and we have more than one to help New Zealand keep up its strong growth rate. For New Zealand's economy, where the Government has a strategy of diversification, it is pleasing to see dairying improving again to complement other agri industries," says Tim.

"It will take time before farmers regain the positions they had before the downturn. We know they are not getting ahead of themselves and they are keeping a lid on costs.

"There is also a renewed focus on pasture as the key source of nutritious and cost-effective feed."

Dairy farmers will need to continue to manage costs tightly and seek to achieve lower cost of production.

Harvesting as much pasture as possible will help keep the cost of production down and should be a key focus area for dairy farmers.

"The gains achieved over the past three seasons in reducing the cost of production need to be 'locked in' as milk prices improve."

The milk price increase is positive for all New Zealand dairy farmers, but particularly for North Island farmers who have endured a difficult wet spring, resulting in reduced milk production.

It is also a boost for North Canterbury and Kaikoura farmers who are doing it tough right now.

"The $6 milk price brings farmers to above break-even levels. However, many farmers have increased debt and deferred maintenance expenditure over the last season or two," says Tim.

The $5.05/kg MS break-even milk price will be revised up, reflecting some additional farm working expenditure as well as tax payments.

The increase in advance payments begins on December 20, lifting 50 cents/kg MS to $4.10/kg MS.

Any further increases in milk price this season will go toward repaying Fonterra loans for the majority of farmers who have them.

Off the back of the announcement, farmers are encouraged to:

- update their cashflow budget and communicate changes with their bank and accountant (potential tax implications).
- know their financial position and use that to make informed decisions on where/how to allocate the extra money - pay down debt, consider any deferred spending if it will have a positive impact on profitability, or focus on achieving business goals.
- do not lose the efficiencies gained over the last couple of seasons.
- consider a farm business review in tandem with their farm system to make sure everything is aligned - what better time than as we recover from low milk prices?

- For more information on budgeting, visit dairynz.co.nz/budgets