NEW ZEALAND – Matching cost of production to milk price can be done if farms retain, reduce, defer or remove expenses, DairyNZ has advised its producers.
DairyNZ chief executive Tim Mackle says that under current forecasts, milk payments for the next 12 months would be $4.75/kg MS, including retro payments from last season and dividends. This compares with an industry average breakeven milk price of $5.70/kg MS.
The Tactics for Tight Times initiative from DairyNZ has taught farmers about ways to cut costs and live with low milk payouts.
“Clearly we need to retain production as best we can, but at a lower average cost of production to minimise increasing debt levels further,” says Tim.
“This (the period until Christmas) will be the lowest milk payment since 2006-07. While it is going to be a very challenging season for a lot of farmers, it’s also an opportunity to strengthen the resilience of our industry if we can use it to become more efficient in how we farm.
“Ultimately, this kind of challenge could make us more competitive if we use it to drive efficiency throughout our businesses.”
DairyNZ is working with 30 respected and proven ‘Tight Times’ farmers throughout New Zealand to shape support and to share tips and tactics on getting through this low milk price cycle.
The farmers are telling their stories and sharing their decisions to demonstrate exactly how they keep their costs of production in line. This is for all farmers and will occur through a series of events on ‘Tight Times’ farms throughout the season. The farmers have a mix of farm system types and business structures, including sharemilking.
DairyNZ general manager of research and development David McCall says now is the time to get a budget sorted for next season – before the busy calving period.
“It’s a lot less stressful to have thought about and made decisions about what to spend in advance than to try and make these decisions ‘on the hoof’ when under pressure.
“To support this budgeting we are getting practical and specific. We are conducting in-depth case studies on a number of farms with good production and a sub $3.50/kg MS cost of production.
These farmers, operating a range of production systems, will share the specific physical items they purchase and their rationale for what they spend. This information will be available atdairynz.co.nz/tactics in July.
Process for savings
Meanwhile, those with budgets can consider reviewing that budget further on a line by line basis, says David.
“The logic is to ask the question about each line. Do I retain the expense, can I reduce it, can I defer it (say to next year) or can I remove it?”
Below is an example of the process.
- Retain expenditure that has a direct impact on current profitability. E.g. fertiliser N to fill feed deficits, preventative animal health vaccinations, metabolics and minerals.
- Reduce by trimming costs to live within our means. E.g. taking on tasks ourselves (GST and cashbook, relief milking), personal drawings and using bull of the day instead of premium sires.
- Defer costs needed for the future of the business but which will not give a return this year. E.g. capital phosphate, re-grassing, repairs and maintenance (or do it yourself), machinery replacement.
- Remove costs associated with waste. These will also produce a long term benefit to your business. E.g. supplement, pasture, supplies, vehicle use and time wastes and bank and IRD penalty costs.
TheCattleSite News Desk