DairyNZ 2007-08 Economic Survey, released today, shows that even in a year with high payouts and many regions adversely affected by drought, that the average cost of milk production (operating expenses per kilogram of milksolids) is the best indicator of operating profit per hectare. "This means it is the marginal return decisions that are more important in determining profit rather than the volume of milksolids produced or the total cost in isolation," says DairyNZ Economist Matthew Newman. World milk prices have dropped dramatically since the highs of early 2008, costs are still at a high level, some farms are still in need of pasture renewal following the summer 2008 drought and it has been a very cold and wet winter resulting in much lower pasture covers than normal. On top of this debt levels have increased and land prices are dropping. "Approximately a quarter of dairy farmers will face liquidity risk this season. It is challenging times for dairy farmers," says Matthew. Farm Working Expenses (FWE) are forecast to drop back to around $3.30 in 2009-10, which would still be $0.60 higher than 2006-07. Supplementary feed and grazing costs are forecast to be 25% of total FWE with wages (16%) and fertiliser (14%) the next biggest expenditure items."Of course each farm is unique and has different challenges, but there is no doubt that the 2009-10 will be difficult for most," says Matthew. While times are tough and expected to remain this way for the next two seasons, he says the medium term outlook is positive. World populations are growing and as incomes rise following the global recession, demand for protein will increase. But dairy farmers will have to ride out the storm, by producing milk more efficiently."Dairy farmers are traditionally resilient and respond quickly to market signals, but there is nothing like a downturn to remind farmers of the basics, concentrating on producing good levels of milk from pasture grown on the farm and at low cost." The Economic Survey of dairy farmers is an annual reference document of financial information. It was first published in 1963-64 and this is the third year the annual DairyNZ Economic Survey of dairy farmers has been conducted using dairy farm business data entered into DairyBase. The 2007-08 Survey not only contains a 10 year time series but a forecast of average Owner-Operator operating profit for 2008-09 and 2009-10. A copy can be downloaded from the DairyNZ website or ordered by calling 0800 4 DAIRYNZ.
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