The initial advance payment of $3.85/kg of milksolids (MS) means cashflows will be tight through to January, according to its latest report in its dairy monitoring programme. The drop in the expected dairy payout would result in total milk income falling 20%, compared with 2011/12. Net cash incomes would be down 18%.
While farmers were budgeting conservatively in the face of the reduced payout, the MPI expected overall farm working expenses (FWE) to be down only 3% compared with 2011/12. The main reductions in spending would be on feed, in both supplements made on-farm and bought in, fertiliser, and repairs and maintenance. But these were expected to be offset by inflation-driven cost increases.
Farm profit before tax has been budgeted to slump 57% from 2011/12 and the average farm is budgeting to run at a loss. The report acknowledged the widespread expectation that the US drought would result in increased international prices, but it said “if prices did not lift significantly, farmers will look to cut expenditure further to break even”.
The national dairy model budget shows net cash income in 2011/12 was $1,161,690 and FWE $664,634, providing a cash operating surplus of $517,056. Net cash income in 2012/13 is budgeted at $949,378 and FWE at $624,829, providing a cash operating surplus of $324,549.
Before-tax profit last year was $319,519 but is budgeted this year at $137,589. The $145,722 farm surplus for reinvestment last year is budgeted to shrink to $49,622. This is the cash available from the farm business (after meeting living costs) available for investment on the farm or for principal repayments. It is calculated as farm profit after tax plus depreciation plus stock adjustments less drawings.
The power bill (up 20%) is among expenses that have been significantly increased in the 2012/13 budget. It has been lifted from $20,946 to $25,403. Water charges for irrigation are up significantly too, from $3333 to $4551.
The report said the 2011/12 season again highlighted fluctuating incomes as one of the major risks in farming. At the start of the year, the expectation was for a payout around $6.75/kg MS but its reduction was “mitigated by a wonderful season that resulted in a 10% increase in production, although increased expenditure resulted in a much reduced cash surplus compared with 2010/11”.
The budgeted expectation for 2012/13 is for a drop in production back to “normal” levels, coupled with the reduction in payout.