6th August 2015
Milk price – a test of farm resilience
Roger Wilson – KPMG Farm Enterprise specialist
The possible milk payout forecast by DairyNZ CEO Tim Mackle, based on Open Country, of $4 per kilogram of milk solids
has the potential to hit the average dairy farm by $250K according to KPMG analysis.
Its assumed Fonterra will lower their forecast to a similar level tomorrow.
This projected price level will sorely test farm system resilience and confidence according to KPMG Farm Enterprise
specialist Roger Wilson.
“The Individual impacts will vary depending on farm system and debt.” says Wilson, “The outlook is tough but this is the
time to apply some science and really examine the options.”
A lot of farms are actually adaptable and resilient and the smart farmers can be very responsive even in the short term.
With stronger beef prices farmers may look at incorporating an element of dry stock farming, particularly if dairy herd
sizes are reduced.
The KPMG Farm Enterprise team are already seeing proactive farmers using a combination of reducing the use of
supplements and fertiliser, and lowering stock numbers and the reliance on off-farm grazing.
The big call is stock numbers where a one off cull of 10-20% of cows post calving might be a good option. Critically
this has a one off cash flow benefit, and tightens the operating budget without impacting capacity in 24 months.
Roger Wilson says, “Expect this to contribute to a reduction in milk supply for 2015/16 which is forecast to provide
Fonterra with a bit more flexibility at its end.”
The reduction in supply should contribute to improved operating performance for dairy companies in 2014/15. Fonterra is
already running at full capacity which limits its product optimisation options. With increased capacity and reduced
supply Fonterra will have the flexibility to move a much higher proportion of product into high value streams and drive
a much better EBIT number.
It shouldn’t be forgotten that returns across the balance of the industry are still in a good place, 60% plus of the
primary sector is booming, this shouldn’t be overlooked.
ends