I was a little too pessimistic with yesterday’s prediction that Fonterra’s projected payout would drop by a dollar, it’s down 90 cents to $5.10 per kilo of milk solids.
That’s well below last season’s $7.90 and the opening projection for this season of $7 but it’s still ahead of the long term average.
However, it’s still a big drop in farmers’ income. The Herald reports the $5.10 payout will mean a substantial drop in income for farmers
Based on last season’s collection of 1.19 billion kg of milksolids a 90c cut means a loss to the economy of around $900 million to $1bn.
It’s not just the reduced income for farmers, it’s the impact that will have on the wider economy, including the tax take.
Then there’s uncertainty about the outlook which leaves a question over whether the payout will drop again before the season’s over.
But while the payout is out of farmers’ control, the expenditure side of the balance sheet is our responsibility and keeping a tight rein on costs will compensate, at least in part, for the drop in income.
I’ve quoted a speaker at a SIDE conference before and it’s worth repeating: he started dairying when the payout was $5 but had a better financial year the following season when the payout dropped to $3.60 simply by keeping costs down.
Jamie McKay is devoting most of The Farming Show to discussions on the payout.