Improved profitability leaves dairy farmers positive but cautious

Dairy farm profitability improved strongly in 2009/10 compared to 2008/09, with the outlook for 2010/11 also positive, but farmer confidence is still fragile according to the Ministry of Agriculture and Forestry's (MAF) latest farm monitoring reports.

MAF's Manager North Island Regions Phil Journeaux says that the dairy reports released today show that the major factor behind the boost in income was the significant lift in the dairy payout over the season.

"Most farmers had a poor financial year in 2008/09, and with the low payout forecast at the start of the 2009/10 season, farmers kept a very tight reign on expenditure. The lift in payout later in the season combined with a drop in average farm working expenses helped improve profitability," says Mr Journeaux.

Profitability this season is likely to drop back slightly compared to 2009/10, as farmers look to increase expenditure on items deferred or reduced over the past two seasons, such as fertiliser and repairs and maintenance.

Nationally milk production increased in 2009/10, with a drop in the upper North Island due to the drought more than offset by increases in the South Island. However, the drought is expected to have a knock on effect in the early part of the new season with lower production in drought hit areas.

MAF monitors 160 farms around the country, with the average farm from the sample requiring a payout in 2009/10 of $5.63 per kilogram of milksolids to "breakeven" (covering farm working expenses, debt servicing, personal drawings and depreciation).

Mr Journeaux says that the outlook for 2010/11 is positive, with farmers buoyed by the good initial payout forecast. But while farmers are optimistic for the future, that optimism is fragile given recent fluctuations in payout and pressures around debt.

"Farmers are telling us that things are looking better, but they are being cautious and relatively small changes in incomes or expenses could affect their spending plans," says Mr Journeaux.

The Ministry of Agriculture and Forestry's farm monitoring reports are compiled each year based on feedback from dairy farmers and industry representatives. The latest models are prepared in July 2010.

A copy of the reports can be found on the MAF website: www.maf.govt.nz/mafnet/rural-nz/statistics-and-forecasts/farm-monitoring