Farms facing cashflow squeeze

The intention is to give farmers a “wake-up call” to assess their situation given the low forecasts.

DairyNZ chief executive Tim Mackle says 2015-16 may still turn out to be a breakeven year for most farmers but tight cashflows could result in increased term debt in the sector and less spending in the regions.

“Farmers are used to having seasonal cashflow that drops into the red but then pops back into the black at some stage during the summer,” he says.

“However, our forecasts indicate that many farmers won’t be in credit for the entire 12 months of next season unless they reduce costs, their income is higher than predicted or some of their overdraft is put into their term debt.

“We will be helping farmers to understand how low their own cashflows might go for the 2015-16 season, and how long they might stay there. We’ve analysed what it’s like for the average farmer in every dairying region and plotted that on a graph. It’s not looking pretty.” 

Mackle says while the long term prospects for the industry are still positive, farmers have to compete in a global exporting business where NZ’s market share could be eroded by other competitors.

“We’re in a strong position as an industry because we have scale and strength as a competitive producer and exporter of high quality dairy products. There’s still growing demand for our product and the supply-demand equation will eventually improve. But the landscape internationally is also changing with EU quotas coming off and the US steadily gearing up to produce more milk, potentially for export. 

“My message to farmers is that resilience is needed so that farmers can cope effectively with the trough in milk prices after the record payment we had in 2013-14. If you haven’t already worked through the numbers, it’s time to think about setting yourself up to manage through another breakeven season in 2015-16 and look at what will make your business resilient in the longer term if lower prices stay low for longer,” he says.