Friday, December 8, 2023

Budgets need high alert level

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Milk prices next season predicted at $6-plus are going to drop into break-even territory for dairy farmers, AgFirst Waikato agricultural economist Phil Journeaux says. The break-even level as a combination of farm working expenses, debt servicing (interest-only), depreciation and living expenses is aboout $6/kg milksolids, he said.
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A farmer wanting to make debt repayments and some capital expenditure on environmental matters would need closer to $7.

“So, any drop in payout below $6 means dairy farmers are in for another tough year.”

Though this season’s $7.30 is a good payout many farmers have burned a lot of money on supplementary feed because of the drought.

Some debt will have been repaid this year and last year but cashflows remain tight and the deferred wash-up payments from June to October will help considerably, Journeaux said.

“Watch your costs as closely as you can this financial year and try to carry forward as much cash as you can into next year.”

As a result of the drought farmers can use the income equalisation scheme by arrangement with Inland Revenue.

The discipline with which dairy farmers do budgets varies considerably despite several computer programmes making it easy.

Journeaux recommended farmers do regular budgets with updated inputs.

“But the factors are largely suppositions at this stage – no-one knows what covid-19 will do to dairy prices in say six months’ time.”

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