Sunday, July 3, 2022

Record PKE price adds to new season challenges

Skyrocketing farm input prices are creating headaches for farmers trying to plan budgets for the new season.

Skyrocketing farm input prices are creating headaches for farmers trying to plan budgets for the new season.

Global uncertainty caused by covid-19 and the war in Ukraine has pushed up prices across the board. Supplementary feed has joined fuel, fertiliser and other inputs, with palm kernel rising to a record $500-$510/ tonne price, lifting from $320 a tonne 12 months ago.

The high dairy payout is allowing those costs to be absorbed to a degree, but it was making a budget a challenging exercise for dairy farmers, AgFirst director James Allen said.

“The year we are just finishing up, we have had the benefit of a good milk price with moderate feed prices. Going forward we have a good but very uncertain milk price combined with a definite increase in costs,” Allen said.

Likewise, Federated Farmers president Andrew Hoggard said it was a big challenge to keep readjusting a budget when prices kept on changing.

“The lucky thing is that while input prices have gone up, what we are selling has too. It’s just a case of maintaining that margin,” Hoggard said.

“If the milk price slips it would be a totally different story.”

AgFirst’s farm model for Waikato and Bay of Plenty dairy farms had a budget of $4.60/kg MS for this season.

Allen expected that to lift closer to $5/kg MS once its annual survey is reviewed.

“It’s about taking stock of this year before making a budget for next year,” Allen said.

Farmers should also talk to their accountants about tax because many would have a “pretty solid” tax bill for the year ahead.

Stocking rate and feed are the two main drivers of a dairy system and dictated staffing levels and farm machinery or infrastructure.

“Once you’re into the system, while you can tweak it a little bit, a lot of the costs are fixed,” Allen said.

“Right now – April-May – is the time to review your farm system and ensure you’ve got the right system for the season ahead.”

Farmers feeding out PKE at $500/t needed to be receiving a very good production response to make it worthwhile. At an $8/kg MS, it was barely breaking even, he said.

Maximising the amount of homegrown feed is an obvious solution to reducing costs. While it was still very early, Allen said he had already heard some maize growers say they were being pressured to increase their crop size for next season so dairy farmers could reduce their costs.

“I think there’s going to be pressure on for potentially more maize grown next year,” he said.

Maize silage was still a cost-effective feed and he said he would not be surprised if more gets used in the year ahead. He would also not be surprised if growers lift their rates because of the increase in fuel, wages and fertiliser costs compared to last year.

The doubling of fertiliser costs meant farmers will have to be very strategic with its usage to ensure it is cost effective and farmers will also have to be mindful of rising interest rates and labour costs.

Farmers will have to be super-efficient with whatever inputs they use, he said.

Some farmers are also using the rising costs as a springboard for reviewing their systems for environmental reasons as tighter rules around emissions and freshwater take effect.

“If I flip that around and say, ‘do I see increases in stocking rate and intensity happening?’. The answer is no and when you have really high supplementary feed prices and N prices and all of this environmental pressure, people are starting to think, ‘why don’t I ease back and what does that look like?’

“We have a number of clients asking those questions.”

Hoggard said one advantage New Zealand had was that its milk price was a lot more attuned to world prices than farmers from other countries and currently, there is huge demand for dairy.

“Their farmers are hurting a lot more than we are, which is driving a number of them to reduce production, which lifts the (dairy) price even more,” Hoggard said.

“By and large, we’re able to maintain that margin to a degree here in New Zealand.”

The pressure of high costs was possibly even tougher on sharemilkers and contractors. Farm owners must keep communicating with them if those costs change over the course of the season and what was agreed to at the start of the season was no longer fair, he said.

“If you don’t talk to them, you might find yourself back in the cowshed pretty quickly. It’s important for all sides to keep up those lines of communication” he said.

More articles on this topic