Dairy farms pare costs back to the bone

Cost-cutting measures by cash-strapped dairy farmers have meant a further reduction in their break-even cost.

DairyNZ has revised the break-even milk income required for the average farmer in 2016-17 to $5.05 kg/ms, down from $5.25 in 2015-16 and $5.77 in 2014-15.

The reduced milk price meant farmers had fine-tuned their management and analysed their costs of production, DairyNZ chief executive Tim Mackle said.

That should bring the average farm working expenses back to an anticipated $3.55 kg/ms this season, the lowest level since 2009-10.

Farm working expenses were $4.07 in 2014-15 so the reduction was equivalent, on average, to about $100,000 per farm.

Reducing the break-even price was "tremendous recognition'' for farmers and the resilience they had shown, Mr Mackle said in a statement.

"Being able to reduce [it] tells us that dairy farmers have cut costs further than we thought. This cost control is resulting in more efficient dairy businesses, which is key to resilience,'' he said.

Earlier this week, Fonterra kept its forecast farm-gate milk price unchanged at $4.25 and announced a forecast earnings per share range for the 2017 financial year of 50c-60c.

Under the current forecast, farmers would receive about $4.50 kg/ms all up in terms of milk income, including retro payments from last season and dividends.

Obviously, there was a shortfall and while there were farmers operating above that $5.05 level there were also many with break-even incomes below that.

But a $4.50 income and reduced farm working expenses meant farmers would not need to borrow quite so much, Mr Mackle said.

"But let's be clear, this is still very tough for our farmers as it's been a sustained period of low milk price.

"Every farm runs a slightly different system, with different costs and needs. Many will have been through the process of fine-tuning their budgets, but maintaining that momentum and always looking for efficiency opportunities is key,'' he said.

DairyNZ's Tactics for spring events would be held in September and October, helping farmers extract maximum value from their pasture.

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