Milk Monitor Farm profit up

Milk price in a sweet spot

By Gerald Piddock

Each month the milk monitor delves into the dairy industry and gives us the low-down on the good, the bad, the ugly and everything in between.

Two separate reports released in August have shown how profitable the past two seasons were for the nation’s farmers.

DairyNZ’s annual economic survey showed that operating profit jumped 28% in the 2019-20 season compared to the season prior to $2750 a hectare, while milksolids per cow and hectare were at their highest level to date.

That’s a fairly impressive effort considering farmers battled drought, covid-19 and expenditure increases.

Likewise, AgFirst’s 2021 financial survey painted a similar picture for last season. Farm profit after tax jumped 31% in 202021 thanks to a buoyant dairy payout.

Countering this was an 8% increase in farm working expenses compared to the previous year from $4.26-$4.48/kg MS.

Those costs had pushed the season’s breakeven payout up from $6.54-$6.94/ kg MS. This is what the payout needed to be for the model farm to be able to pay essential expenditure.

That breakeven number averaged $5.98 between 2014-15 and 2020-21, but has crept up to just under $7/kg MS by last season. That rate of increase, as AgFirst economist Phil Journeaux says, was becoming unsustainable over the long-term.

The big positive was that for now, the income being earned is greater than these expenses, the biggest being feed costs, followed by labour, fertiliser and overheads.

Similarly, DairyNZ’s survey reported a 21c increase in costs to $5.31/kg MS in 2020-21.

DairyNZ economist Graeme Doole says the jump in costs was not enough to erode profit because farmers were efficient spenders.

It will still need a substantial fall in milk prices for it to fall below AgFirst’s $7/kg MS breakeven figure.

Milk prices have petered along with eight auctions in a row of negative results before the mid-August auction that saw a 0.3% lift, with all products rising apart from whole milk powder (WMP).

The average across the board price for all goods was US$3827 a tonne, which is historically still pretty high.

ANZ’s August Agrifocus says while commodity prices had eased, its forecast of $7.70/kg MS remained intact.

It expected the modest growth in milk output for the rest of the year to help underpin commodity prices at or near current levels. Prices have reduced but are still about USD$200/t above the USD3600/t (weighted average) used in its forecast.

Rabobank’s Emma Higgins noted that while skim milk powder (SMP), butter and cheese prices had fallen, market fundamentals remained balanced and the bank retained its $8/kg MS forecast.

Westpac dropped its forecast by 25c to $7.75 after the August 3 auction, citing strong NZ autumn milk production combined with the market impact of covid-19’s Delta variant.

Locally, that production was up 2.7% for the season, which is also the highest season-on-season increase since the 2014-15 season.

The bank’s dairy update said that extra milk that it created reverberated through the markets.

“Whole milk powder prices have fallen over 12% since March, coincidentally from the time when New Zealand production started cranking higher. And given the sheer magnitude of the extra milk inmarket, it’s not altogether surprising that whole milk powder prices have yet to find a bottom,” agri economist Nathan Penny says.

It looks like this season’s peak milk could be critical for shaping the market’s fortunes.

He says the amount of volumes of NZ’s spring production will begin to provide fresh impetus for prices in either direction.

Similarly, ASB pointed out in its Commodities Weekly that peak milk will be the real test for prices.

“WMP losses have been in part driven by stronger production data of late, both in NZ and in the Northern Hemisphere. Now that we are entering the peak months, the strength of NZ production will only grow in importance as a swing factor and could drive a bit of further volatility,” it said.

The reduction in volumes being sold on the GDT also lent credence to Fonterra’s claim it is getting strong demand outside that platform.

Even if the payout fell towards the bottom end of Fonterra’s $7.25-$8.75/ kg MS range, it would still mean a good result – and be above that $7 breakeven mark. n

This season’s peak milk period over spring could hold the key to a third profitable season for farmers.

Support for floodaffected farmers

Flood-affected farmers in the South Island are being encouraged to make use of livestock feed support services funded by the Ministry for Primary

Industries (MPI).

Widespread flooding across the

Canterbury, West Coast, Tasman and

Marlborough areas this winter has damaged pasture and caused losses to supplementary feed.

Since June, MPI has boosted feed support services and allocated more than $4.7 million for recovery grants, technical advice and wellbeing support.

“Several of these regions had been battling long-term drought prior to the floods, which have put further pressure on feed supplies heading into calving and lambing,” MPI’s director of rural communities and farming support Nick

Story says.

“We have ramped up support for farmers, including funding recovery coordinators and establishing a dedicated fund to help clear flood debris from paddocks in Canterbury.”

MPI funds Beef + Lamb New Zealand,

Federated Farmers and other specialist providers to offer free, one-on-one feed planning support to livestock owners.

“Having a clear feed plan will be vital for many farmers to get through the next few months, identifying feed requirements to minimise animal welfare issues through a critical part of the seasonal calendar,” DairyNZ’s South Island manager Tony Finch says.

“The service supports farmers to calculate their feed demand and supply, investigate options to fill feed gaps and proactively make decisions.”

Finch says in some cases dairy farmers may have to lease out cows in order to reduce feed demand and get through the season.

“The important thing is that decisions are made early. Getting your plan down on paper can help give you peace of mind and provide clear direction,” he says.

The Feed Planning Service can help farmers do a snapshot feed plan for the rest of winter and spring in as little as 20 minutes.

“Paddocks covered in silt won’t be growing any feed. Careful planning is needed to get that land back into production and growing pasture, or a crop to fill feed gaps,” B+LNZ South Island general manager John Ladley says.

“A recovery plan for regrassing should use a mix of short-term and permanent pastures. Using all annual pastures could result in another feed pinch next year when pastures have to be renewed again.”

Farmers are encouraged to get flooddeposited silt covering paddocks tested so the correct fertiliser can be applied.

MPI’s director of animal health and welfare and veterinarian Chris Rodwell says grazing pasture coated with silt can cause animal health issues and careful management is needed.

“We know that animals can develop a range of poor health conditions from silt. Farmers are facing challenging conditions and we really encourage everyone who has concerns about the health of their animals to seek advice from their veterinarian,” Rodwell says. n

MPI’s director of rural communities and farming support Nick Story says support services are available for South Island farmers affected by flooding.

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To get help from the Feed Planning Service, or to list or source feed or grazing through the Feed Coordination Service, farmers are encouraged to call 0800 FARMING (0800 327 646). Farmers who need wellbeing support should contact their Rural Support Trust on 0800 RURAL HELP (0800 787 254).

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Cutting sprains and strains

Reducing the rate of injuries in the dairy sector would have a positive impact on the wellbeing of people working in the sector.

Anew DairyNZ and ACC project wants to improve the health and safety of farmers, by reducing the occurrence of on-farm injuries.

The Reducing Sprains and Strains project is designed to develop solutions which support a sector-wide reduction in sprains and strains by 2030.

DairyNZ general manager of farm performance Sharon Morrell says these injuries often arise particularly during busy periods on the farm.

“Sprains and strains represent around 40% of dairy farm injuries, with the highest risk period occurring between August and October. This coincides with peak calving on most farms, where we often see increased working hours and fatigue,” Morrell says.

This project has received $900,000 of co-funding by the ACC’s Workplace Injury Prevention programme, supported by a $150,000 investment by dairy farmers through the DairyNZ levy.

“We are grateful for the ACC funding, as it will allow us to identify potential solutions to reduce sprains and strains, helping improve the wellbeing of our farmers – employers and employees,” she says.

The project works towards improving workplaces, which will have positive outcomes for all farmers, supporting the sector to attract and retain staff.

“Our goal is to work with farmers to understand the causes of sprains and strains, potential solutions and drivers of change to develop solutions that fit with their farming practices.

“This will then benefit other areas of the business, including farm productivity,” she says.

ACC workplace safety injury prevention manager Virginia Burton-Konia says reducing the rate of injuries in the dairy sector would have a positive impact on the wellbeing of people working in the sector, and a safe and well workforce means more productive businesses.

The Reducing Sprains and Strain project will use expertise from auditing and training provider QCONZ for its project delivery.

“Our goal is to work with farmers to understand the causes of sprains and strains, potential solutions and drivers of change to develop solutions that fit with their farming practices.” Sharon Morrell

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