Waikato dairy farmers should be in for a profitable dairy season.
If the payout stays at its current forecasted $7 per kilogram of milk solids, the industry would bring in an estimated extra $200 million for the region above the season just ended.
Furthermore, the increase in payout brought in an extra $700 million into the regional economy for the season just ended, AgFirst agricultural economist Phil Journeaux said.
Speaking at the release of the rural consultancy company’s 2018 Financial Survey at Mystery Creek, he said the industry is in a healthy position.
The survey is based on 24 farms throughout the Waikato-Bay of Plenty and provides a representative snapshot of the 4900 farms in the region.
A farm model is then created based on the results. This model is 125 hectares, milking 340 cows and producing 125,000-130,000 kilograms of milk solids.
If the payout stays at $7/kg MS, the farm model would have $252,411 in farm profit before tax, a $952,124 net cash income and $143,412 of farm surplus for re-investment.
“The farm profit before tax and the farm surplus are looking good,” Journeaux said.
If the payout fell to $6.75/kg MS, the farm model would make a $19,000 loss in net cash. Its farm profit before tax would fall to $187,711 and the farm surplus for re-investment would drop to $78,712.
Journeaux said the payout moved on average by $1.25/kg MS from the opening forecast to the end of the season.
“It’s a matter of wait and see to see which way the payout goes.
“All things been equal, the [model] farm’s looking in quite a healthy position.”
Waikato dairy farms now need a payout of $6/kg MS or over to operate. For the farm model to break even this season, the payout needed to be over $6.19/kg milk solids, up from $6.06/kg MS last year.
“The good news, of course, is that the payout will be sufficient for that.”
From a debt perspective, the industry was close to being back to where it was prior to when the payout crashed in 2015-16, he said.
“As long as we get seven bucks this year, we’ll probably pay that back.”
He said the outbreak of Mycoplasma bovis remains the most significant issue to hit the industry this year. It has been confirmed on two Waikato farms.
Farmers are concerned about how to stop its spread and are looking at a range of actions, including using all artificial breeding, strengthening fencing and being very cautious about rearing calves, or sending their heifers out for grazing.
“How much all of this happens remains to be seen. Most farmers are watching the [M bovis] milk testing in spring very closely.”
Increased compliance was also an ongoing issue. Waikato farmers are having to tackle the Healthy Rivers plan change, health and safety, animal welfare and the potential for agriculture coming into an emissions trading scheme, he said.
“There’s a lot of compliance coming on to farms and we’re certainly noticing it in our consultancy. Farming is becoming a very complicated business.”
He described last year as a season of two halves for Waikato dairy farmers. It was very wet through to October before it suddenly became very hot and dry, sparking fears of a summer drought.
“The first half of the season, to put it mildly, was a p**** of a season,” he said.
It then started raining again in January and good conditions remained until the end of the season.
While pasture returned after Christmas, farmers never completely recovered and, on average, finished the season 1.1 per cent back compared to the 2016-17 season, he said.
Despite the challenging year, the lift in the dairy payout improved the farm’s net cash income by 24 per cent and cash operating surplus by 50 per cent.
By: Gerald Piddock