{"id":28117,"date":"2017-08-04T00:00:00","date_gmt":"2017-08-03T12:00:00","guid":{"rendered":"https:\/\/www.farmersweekly.co.nz\/dairy-farmers-still-fighting-debt\/"},"modified":"2017-08-04T00:00:00","modified_gmt":"2017-08-03T12:00:00","slug":"dairy-farmers-still-fighting-debt","status":"publish","type":"post","link":"https:\/\/www.farmersweekly.co.nz\/news\/dairy-farmers-still-fighting-debt\/","title":{"rendered":"Dairy farmers still fighting debt"},"content":{"rendered":"Reading Time: <\/span> 3<\/span> minutes<\/span><\/span>

The latest AgFirst financial survey for Waikato-Bay of Plenty dairy farmers was released last week.<\/p>\n

Survey compiler Phil Journeaux said the model farm used in the budget incurred an additional $126,560 of term debt, or almost $1\/kg of milksolids in 2015-16 to cover the hit the farm took when the payout slumped to $3.90\/kg MS that season.<\/p>\n

\u201cThis loan amount was almost an extra $1\/kg milksolids and some debt repayment was made in 2016-17 and is budgeted again for 2017-18.<\/p>\n

\u201cAssuming a similar level of annual debt repayment and everything else remaining the same, it will take until 2019-20 season to clear this debt and get back to their 2015-16 debt position.\u201d<\/p>\n

For many farmers that extra debt load came at least in part through the Fonterra loan offered to shareholders in 2015.<\/p>\n

Taken up by about 80% of suppliers, that loan had to be repaid once the payout exceeded $6\/kg MS, which would fall in October as the advance payout rose.<\/p>\n

The model farm used by AgFirst had a Fonterra loan of $31,500 with $18,000 budgeted to be repaid this year and the rest in the 2018-19 season.<\/p>\n

The total borrowed equated to 15c\/kg MS in the AgFirst budget.<\/p>\n

The Fonterra loan was part of the extra $126,000 debt incurred to tide the farm over the payout slump.<\/p>\n

The impact of such compulsory loan repayments and heavy capital expenditure to meet compliance demands played heavily on farm budgets for this and next season.<\/p>\n

\u201cWe have about $50,000 in the budget for capital expenditure but of that about $30,000 will be committed to installing snap chilling equipment to meet the new milk cooling regulations that come in this year.\u201d<\/p>\n

Farmers had also on average incurred about $8000-$10,000 on capital expenditure in installing compulsory bobby calf holding pens, with that requirement kicking in on August 1.<\/p>\n

\u201cSo that means we only have about $10,000 spare for other capital expenditure. It is not a lot given the low levels we have also had in the past couple of seasons.\u201d<\/p>\n

Journeaux agreed dairy farms were facing some mounting bills for deferred repairs and maintenance that was pushing equipment and facilities to their limits.<\/p>\n

\u201cWhat we are seeing is the expenditure on new equipment and machinery is below the depreciation rate, with little spare to fill in.\u201d<\/p>\n

Many farmers also faced the prospect of ongoing environmental compliance that would make further capital investment demands.<\/p>\n

Last year Journeaux expressed his concern over the sustainability of the lowered farm working expenses.<\/p>\n

For 2016-17 they were $3.81\/kg MS and for 2017-18 were estimated at a similar level, $3.77\/kg MS.<\/p>\n

Given the wear and tear dairy operations put on equipment, his concern remained over the sustainability of that cost level. He estimated a sustainable farm working expense figure was probably $4\/kg MS.<\/p>\n

\u201cOn our model farm we are only working on about 80% of the ideal fertiliser application going on and many farms are still operating at sub-maintenance spending in areas like repairs and maintenance.\u201d<\/p>\n

The upside of the increase in debt to tide farms over the slump had been a drop in total debt-servicing costs as interest rates continued to remain low and competitive.<\/p>\n

The survey also noted some shifts around farms\u2019 key cost centres.<\/p>\n

\u00a0Over the 2016-17 season casual wages surged by 27% and re-grassing costs were up 40% as many farmers were forced to undersow pastures damaged by appalling weather over spring.<\/p>\n

A notable cost shift over the past four seasons had been the drop in feed costs as a proportion of farm working expenses, from 35% in 2013-14 to 28% for 2016-17.<\/p>\n

Total farm working expenses were going to be a more manageable 57% of total farm income this season, compared to 65% last season and a massive 95% in 2015-16.<\/p>\n

For this season the survey expected casual wages to fall back to more normal levels while total feed expenditure was estimated to rise by 5% given wet conditions and low feed levels heading into winter.<\/p>\n

An appreciable lowering of farm overdrafts should also see debt servicing drop by 4%.<\/p>\n

Journeaux said the upside was a sense of quiet confidence held by farmers about payout prospects, reinforced by the July 28 announcement that pushed Fonterra\u2019s payout to $6.75\/kg MS.<\/p>\n

\u201cSo people are starting to see some light there and a pathway to a better position.\u201d<\/p>\n

However, Journeaux also cautioned farmers\u2019 expenditure decisions on bigger ticket items or debt repayment were likely to be delayed until autumn when they had a clearer signal on Fonterra\u2019s dividend payment.<\/p>\n","protected":false},"excerpt":{"rendered":"Waikato and Bay of Plenty dairy farmers face a \u201cback to the future\u201d slog into 2020 to get back to their 2015-16 season when dairy prices took a tumble.\n","protected":false},"author":29,"featured_media":28118,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[3],"tags":[],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t