Amanda and Bryce Savage, 50:50 sharemilkers on a 134ha farm for Maori incorporation Parininihi ki Waitotara, raised a loan to buy their first farm, a 74ha property near Stratford, in 2013.
Fonterra’s revised dairy payout of $3.85 kilogram milksolids (kg MS), down from $5.25, means they feel they’re going backwards because they’ll have to borrow back all the money they’ve repaid off that loan.
«We’re bitterly disappointed because all our hard work of the last two or three years is being undone,» Amanda Savage said.
«We’ll have nothing to show for it. We’re working hard to achieve our goal – and going backwards.
«We’re in farming for the long haul, so we’re going back to a basic system to minimise what will be a massive loss,» she said. «It’s frustrating because there’s nothing else we can do.»
The tight year made the couple look closely at their business, so it would be more profitable in the long term.
If they changed nothing this season in what had been a reasonably profitable business, they stood to lose $330,000, including interest payments and living costs.
«So I’m working through everything we can trim, like bought-in feed except palm kernel because that’s on contract.»
They’ll do fewer herd tests and her husband has the skills to repair and maintain their machinery and to do their harvesting. Culling 30 cows from their two herds will lighten pasture demand and help their cashflow. Whatever costs they trimmed, they had to bear in mind the effects on next season.
The revised payout meant an initial loss for them of $1.25-$1.30 kilogram milksolids, but severe pruning of the budget since Friday’s announcement has brought it back to 98 cents and a $250,000 loss. «That’s still a lot of money,» she said.
«At this stage we have security to cover that and draw down from the bank. We’ll be borrowing back everything we’ve paid off our loan in the last two and a bit years.»
When they bought the farm, they intended to move there in three years. «Our dream of being on our own farm is getting pushed out. All our work in the last three years has been undone. But we’ll ride the wave and hope to come out the other side.
«Ugly as it is, we’re in a position to minimise losses. Even at a $5.25 payout, we were still losing 90 cents a kilogram.»
They planned to take advantage of Fonterra’s interest-free loan of 50c kg MS on production between now and December.
Her husband said the couple were turning to a grass-based system. «It’s not about making money. It’s about managing the loss,» he said. «We’ll do things ourselves.»
Fonterra shareholders councillor Rob Poole, of Auroa, said whatever the payout, farmers still had to keep things ticking over. They couldn’t mothball their farms because they were committed to their staff and to feeding their animals and they had feed contracts. «We can’t turn the milk off, nor can we store it. We’ve got to put it on the market as it comes.»
He thinks farmers are shell-shocked by the severity of the milk price drop. «It’s hard to believe it can change so much so quickly, but the world market is so finely balanced that it can tip either way.»
Farmers were adjusting their businesses on the best information available. «There’s probably more market information available than ever. You can read it as many times as you like – and none of it is good news.»
However they added up the numbers, the answer was still a negative. Farmers had different levels of debt, but some were likely to struggle in the current environment. With less opportunity to reduce costs, sharemilkers would also struggle. «There will be some farmers who are seriously worried. This short-term blip looks as though it will last longer than expected and that it’s more than a blip. There will be casualties.
«Some farmers will be losing more than others and not many will be making money.»
While banks were being accommodating, he worried about those farmers too scared to go to the bank. «Just go,» he said. «Keep your eyes on the big picture because then it’s easier to see through the quagmire we’re in. Put a plan in place. You need to keep the confidence of bankers and alert them to the situation early. They’ll support you if you address issues before it’s too late.»
DairyNZ Taranaki regional leader Katrina Knowles said offloading lower-producing cows and focusing on fully feeding the remainder of the herd could mean similar production at a lower cost.
But she warned farmers against making false economies that could compromise their businesses in future. Efficient use of pasture and feed and maintaining equipment to minimise the cost of breakdowns and repair were essential.
While banks were actively helping clients with their lending requirements, farmers should limit spending to the ‘need-to-haves’ and keep extra borrowing as low as practical to protect their equity.
Making informed decisions, managing inside the farm gate and reaching out to bankers, fertiliser representatives, bankers, vets, and farm advisers would minimise the low payout’s long-term impact. Farmers also needed to look after themselves and monitor their stress levels. Rural support trusts were well equipped to help those in need.
Low-cost community events at local halls would keep everyone connected. «Some people need support and others are great at extending support. It’s a great combination and is what rural communities are so good at bringing together,» she said.
DairyNZ chief executive Tim Mackle said farmers’ cash income would be constrained for at least the next 18 months and some farmers would take years to recover from low payouts.
The revised payout was the lowest since 2002, since when farm costs had risen more than $1kg MS and average debt levels had doubled. «Low interest rates are helping but our analysis shows the average farmer now needs a milk price of $5.40 to break even.»
If Taranaki farmers produced their 2013-14 production of 184 million kilograms MS, they would receive $672 million, less than half the $1.564 billion they received then, he said.
Taranaki farm adviser and farmer Michael Joyce hopes farmers will assist sharemilkers because they will be under huge financial pressure.
Low payouts were changing industry pathways and employing staff on wages or salaries or relying on imported labour was likely to make the industry less successful. Fonterra was limited in the way it could help sharemilkers because it had no direct financial relationship with them, so he’s appealing to industry leaders to tell farmers assisting sharemilkers will protect the industry’s future.
Although all dairy farmers would be negatively affected by the low payout, he hoped they would focus on what they could control. «Sit down and go through your figures with a fine toothcomb and take ownership of them. If farmers are doing that, banks will be supportive.
«Focus on a high level of efficiency, particularly financial efficiency. If you are doing your level best to keep your business viable, you’re more likely to come through than if you throw your hands up and blame Fonterra or DairyNZ,» he said.
«We’ll have nothing to show for it. We’re working hard to achieve our goal – and going backwards.
«We’re in farming for the long haul, so we’re going back to a basic system to minimise what will be a massive loss,» she said. «It’s frustrating because there’s nothing else we can do.»
The tight year made the couple look closely at their business, so it would be more profitable in the long term.
If they changed nothing this season in what had been a reasonably profitable business, they stood to lose $330,000, including interest payments and living costs.
«So I’m working through everything we can trim, like bought-in feed except palm kernel because that’s on contract.»
They’ll do fewer herd tests and her husband has the skills to repair and maintain their machinery and to do their harvesting. Culling 30 cows from their two herds will lighten pasture demand and help their cashflow. Whatever costs they trimmed, they had to bear in mind the effects on next season.
The revised payout meant an initial loss for them of $1.25-$1.30 kilogram milksolids, but severe pruning of the budget since Friday’s announcement has brought it back to 98 cents and a $250,000 loss. «That’s still a lot of money,» she said.
«At this stage we have security to cover that and draw down from the bank. We’ll be borrowing back everything we’ve paid off our loan in the last two and a bit years.»
When they bought the farm, they intended to move there in three years. «Our dream of being on our own farm is getting pushed out. All our work in the last three years has been undone. But we’ll ride the wave and hope to come out the other side.
«Ugly as it is, we’re in a position to minimise losses. Even at a $5.25 payout, we were still losing 90 cents a kilogram.»
They planned to take advantage of Fonterra’s interest-free loan of 50c kg MS on production between now and December.
Her husband said the couple were turning to a grass-based system. «It’s not about making money. It’s about managing the loss,» he said. «We’ll do things ourselves.»
Fonterra shareholders councillor Rob Poole, of Auroa, said whatever the payout, farmers still had to keep things ticking over. They couldn’t mothball their farms because they were committed to their staff and to feeding their animals and they had feed contracts. «We can’t turn the milk off, nor can we store it. We’ve got to put it on the market as it comes.»
He thinks farmers are shell-shocked by the severity of the milk price drop. «It’s hard to believe it can change so much so quickly, but the world market is so finely balanced that it can tip either way.»
Farmers were adjusting their businesses on the best information available. «There’s probably more market information available than ever. You can read it as many times as you like – and none of it is good news.»
However they added up the numbers, the answer was still a negative. Farmers had different levels of debt, but some were likely to struggle in the current environment. With less opportunity to reduce costs, sharemilkers would also struggle. «There will be some farmers who are seriously worried. This short-term blip looks as though it will last longer than expected and that it’s more than a blip. There will be casualties.
«Some farmers will be losing more than others and not many will be making money.»
While banks were being accommodating, he worried about those farmers too scared to go to the bank. «Just go,» he said. «Keep your eyes on the big picture because then it’s easier to see through the quagmire we’re in. Put a plan in place. You need to keep the confidence of bankers and alert them to the situation early. They’ll support you if you address issues before it’s too late.»
DairyNZ Taranaki regional leader Katrina Knowles said offloading lower-producing cows and focusing on fully feeding the remainder of the herd could mean similar production at a lower cost.
But she warned farmers against making false economies that could compromise their businesses in future. Efficient use of pasture and feed and maintaining equipment to minimise the cost of breakdowns and repair were essential.
While banks were actively helping clients with their lending requirements, farmers should limit spending to the ‘need-to-haves’ and keep extra borrowing as low as practical to protect their equity.
Making informed decisions, managing inside the farm gate and reaching out to bankers, fertiliser representatives, bankers, vets, and farm advisers would minimise the low payout’s long-term impact. Farmers also needed to look after themselves and monitor their stress levels. Rural support trusts were well equipped to help those in need.
Low-cost community events at local halls would keep everyone connected. «Some people need support and others are great at extending support. It’s a great combination and is what rural communities are so good at bringing together,» she said.
DairyNZ chief executive Tim Mackle said farmers’ cash income would be constrained for at least the next 18 months and some farmers would take years to recover from low payouts.
The revised payout was the lowest since 2002, since when farm costs had risen more than $1kg MS and average debt levels had doubled. «Low interest rates are helping but our analysis shows the average farmer now needs a milk price of $5.40 to break even.»
If Taranaki farmers produced their 2013-14 production of 184 million kilograms MS, they would receive $672 million, less than half the $1.564 billion they received then, he said.
Taranaki farm adviser and farmer Michael Joyce hopes farmers will assist sharemilkers because they will be under huge financial pressure.
Low payouts were changing industry pathways and employing staff on wages or salaries or relying on imported labour was likely to make the industry less successful. Fonterra was limited in the way it could help sharemilkers because it had no direct financial relationship with them, so he’s appealing to industry leaders to tell farmers assisting sharemilkers will protect the industry’s future.
Although all dairy farmers would be negatively affected by the low payout, he hoped they would focus on what they could control. «Sit down and go through your figures with a fine toothcomb and take ownership of them. If farmers are doing that, banks will be supportive.
«Focus on a high level of efficiency, particularly financial efficiency. If you are doing your level best to keep your business viable, you’re more likely to come through than if you throw your hands up and blame Fonterra or DairyNZ,» he said.
Source: Stuff
