Forecast milk price provides stability for farmers
Today’s Fonterra forecast Farmgate Milk Price of $7.00 per kgMS for 2018/19 is good news for dairy farmers, according to DairyNZ, and provides some certainty as they head into a new season.
The increase of 20 cents to the 2017/18 milk price (now $6.75 per kgMS) will also see additional revenue for farmers this winter, despite the downward revision of the forecast October dividend to 5-10 cents.
DairyNZ chief executive Tim Mackle says the $7.00 per kgMS announcement for 2018/19 is the third season of $6-plus milk prices and provides dairy farmers with some stability after seasons of volatile prices.
“Dairy farmers will be reassured to see the $7.00 announcement and many will make plans to continue to pay down debt accrued during low milk price seasons in 2014/15 and notably 2015/16,” says Mr Mackle.
“Break-even costs for dairy farmers nationwide for 2018/19 is forecast around $5.40-5.50 per kgMS, which means most farmers will have the ability to reduce debt or invest back into the farm.”
“That being said, it is early days and farmers should always bear in mind that things can change during the season and to budget with some caution, as we have seen swings of $2 from initial forecasts in the past.”
In 2018/19 profitability for the average dairy farm could increase from $2500/ha to $3100/ha (from the 2017/18 season), with revenue potentially increasing by an average of approximately $90,000 for a farm producing 161,000kgMS.
The export value of dairy to New Zealand is $16.7 billion (forecast to June 2018) and likely to increase further in the year to come.
Dairy export earnings are a significant source of revenue for New Zealand. Dairy farming and dairy processing contributes around 3.5 percent of New Zealand’s total gross domestic profit (GDP), with many regions having significant numbers of people employed on farms and in dairy processing.
“With dairy farmers spending an average of 60 percent of revenue on operating the farm, this increase in milk price will be welcome news to many people in regional economies which support farms,” says Mr Mackle. “It will be a real boost for the regions.”
For more information on dairy farm profitability and cashflow over time, see the latest DairyNZ Economic Survey 2016/17 at: www.dairynz.co.nz/economicsurvey
If you are interested in farmer profitability, trends and budgets, visit www.dairynz.co.nz/budgetcasestudies