Don’t “turn off the light” just because you are having a low profit year.
In doing so, farmers can end up losing interest in the farm business – and limiting losses is critical in a down cycle, agricultural economist Pita Alexander says.
“The bottom 25% group in agriculture turn the light off when they’re experiencing a low patch. They lose interest in the whole exercise,” he says.
Alexander shared his impressions of the financial aspects affecting farms and the actions farmers should take to ensure they weather the challenges of a low-payout, high-cost environment at a Smaller Milk and Supply Herds (SMASH) seminar in Inglewood in November.
He is a director of Christchurch company Alexanders, which has specialised in business and accounting advice for agribusiness for 50 years.
The practice has supported dairy farmers through many industry “boom and bust” cycles.
It was one of a number of seminars held across the country organised by SMASH. The seminars featured Alexander and a local farm industry professional for each venue.
Alexander says he has often seen many farmers go into a “cave” during difficult times.
They feel as though they’re letting their family, the bank and themselves down. It’s very important for good advisers and family to “get into the cave” to help.
He also advised farmers not to back off key inputs such as fertiliser, feed, wages, diesel, seeds and animal health. Aim to maintain production, almost at any cost, because backing off those costs will guarantee a major loss in the next year.
“In my troubleshooting years, 30% of the farming operations didn’t survive. They were too far gone by the time someone like me walked down their driveway,” Alexander says.
“Why did the remaining 70% survive? Because they still had fire in their bellies. They were making low profits or losses and finding it very frustrating. But they had fire in the belly and it carried them through the low patches.”
He noted that around 20% of farming men have what he calls “iron disease” – the urge to buy machinery – which raised a wry chuckle from the audience of 70 people.
He recommends that during a downcycle, one partner should vet each capital plant purchase if the other suffers from “iron disease”.
In the short term he recommends farmers hire equipment from a neighbour or employ a contractor to avoid costly capital plant purchases.
“Lack of cash is often not the core problem, but that’s where it shows up. What causes that lack of cash is the core problem. Working harder helps, but working smarter is the key issue,” Alexander says.
“Banks hate surprises, so always communicate bad news to the bank and your partner early. Don’t mull it over, thinking you’re going to address it, because you won’t.”
Taranaki-based consultant Alicia Riley says it has been a hard season in the region.
“Currently, central and northern Taranaki production is around 4% down for the season, off the back of a far from amazing previous season.
“Many farmers are thinking about the supplements they’re using, and considering using less, or thinking differently about how they’re used.”
She notes that many farmers haven’t peaked this year.
“For the most part, we’ve been waiting for the peak and it hasn’t come. Most farmers’ calving patterns have been slower than normal. The cows are peaking, but at different times. We didn’t see the typical big, lovely October peak.”
She notes that in-shed feed has become a tap that can be turned on and off as a never-ending supply of feed. Ten years ago, that supplemental feed was sitting in a silage bunker and used very differently.
“At the start of the season I encouraged my clients to consider the feed they have on contract or intend to use over the summer/autumn/winter period. In the past, we wouldn’t have fed silage as we were making silage.
“But now we’re only too happy to feed two or three kilos of in-shed feed and make silage.”
This article first appeared in our sister publication, Dairy Farmer.
