Dairy farmers are expecting a reduced Fonterra milk payout forecast in two weeks. What's the plan? asks the Nelson Mail . It's a question every dairy farmer is grappling with ahead of an expected reduction in this season's milk payout. Farmers are expecting the next payout announcement after the Fonterra board meets on January 27 to be low. Some farmers in the region have been working out their budgets based on a $4.80 payout, and are revising that again. It comes as Tasman district farmers are reeling from new valuations on their properties, which have risen an average of 56% in capital value, raising the spectre of increased rates in July. Farming incomes tend to fluctuate in a cyclical manner, and last year's higher payout came after several lower years, all in the $4 range, with the average payout for the past seven seasons is $4.86. Many dairy farmers never enjoyed a boom with the higher payout, because it was offset by increased costs, particularly for capital (interest), fertiliser, fuel and wages. To date, much capital investment is made with most costs incurred through the spring and summer period for calving, spring fertilisers and harvesting. Most borrowing is locked in at around 7.5 -8.5% av. New borrowings, if available, are incurring a 2 per cent credit margin. The second provisional tax payment is due in early February, based on the higher 2007-08 season payout. Riley says Inland Revenue will need to consider a revised figure this season and make adjustments to ensure that businesses do not overpay. Some farmers are tending to think that they will minimise labour and do as much work as they can themselves. "This may affect some positions, and it will influence expectations of wage increases. "Essentially, farming businesses will seek to increase efficiency - productivity and profitability - by keeping a strong focus on financial budgets. I would expect that local suppliers and associated businesses will have to remain competitively priced to attract business."DairyNZ consulting officer for the top of the South Island, Victor Gahamadze, says farmers can cut costs by becoming more self-contained. He says that between now and autumn, farmers will sell cows, such as empties, to reduce herd numbers. By doing so, they will reduce their grazing costs and be able to carry more cows on their own farms. Grazing off-farm can cost between $18 and $25 a head a week. Instead of employing a farm manager at a salary of $65,000, a farmer might employ less-qualified farm workers at lower cost, and take back the decision-making. However, Gahamadze says some farmers are saying that cutting their labour would be a last resort, because they are worried that if they lose workers, they might not be able to replace them in future. He says farmers can minimise their fertiliser bill by using it more strategically and making better use of effluent as a fertiliser. If they need to buy supplements, they need to work out the cost to ensure they get a return, he says. DairyNZ advises not paying more than 5% of the payout per kg/DM or it will be uneconomic.
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