Breakeven Milk Price
DairyNZ has revised its breakeven milk price, as one way to help farmers navigate the challenging economic conditions they face this season. DairyNZ head of economics, Mark Storey, says many dairy farmers will be finding the current milk price and inflation issues difficult to take, and how to navigate this season’s reduced income will be causing real concern on many farms.
“We know dairy farmers have a difficult season ahead, in light of the reduced milk price and continuing high farm costs,” says Mark. “The breakeven milk price is one tool we have to support farmers right now, as it helps identify and forecast average costs.” DairyNZ forecasts a national breakeven of $7.51 per kg/MS for this season, down from $8.16/kg MS. This figure reflects the changes farmers are making now.
“The updated breakeven milk price reflects that farmers are working really hard to reduce their spending in the face of extremely high costs. We know farmers are looking at budgets line-by-line and analysing where spending can be reduced, including pausing non-essential capital expenditure and carefully evaluating feed, fertiliser and other spending,” said Mr Storey.
The breakeven milk price of $7.51kg/MS is above DairyNZ’s forecast revenue of $7.34 kg/MS for the season, and above Fonterra’s midpoint forecast of $6.75 kg/MS. This means some farmers will make a loss this season, so the focus will be on maintaining business viability.
At the Farm Office, our latest dairy farm budgets have break-even prices of between $6.45 and $7.41 after rigorously cutting discretionary spending & development from the budget. If we have a budget in Farm Focus and enter the predicted milk production Farm Focus tracks the break-even price throughout the season.
We will send more regular snapshots of the financial situation including in the week before the bills are due (once all bills are entered) and after payment.
We will send monthly reports against the cash flow budget, with comments if there are big unders or overs.
Also, we are setting up regular and automatic payments (drawings, leases, rent ) as recurring invoices, so these automatic payments and direct debits are included in this snapshot before they come out of the bank. The only payments we cannot automate in this sense are interest payments, although we can enter estimates.