Making hay down on the farm

The improvements were features of the Ministry’s 2011 pastoral farm analyses, released as part of its annual Farm Monitoring Report series. The reports provide overviews and models of the financial performance of typical dairy, sheep and beef and deer farms, based on information gathered from sample of farmers and industry stakeholders.

The Farm Monitoring Report shows significant lift in dairy incomes in 2010/11, despite variable year climatically in many parts of the country. Dairy production nationally increased and, coupled with record payout of $7.50 per kilogram of milksolids, typical dairy farm recorded before tax profit of $345,400 in 2010/11 (up 70% on the previous year) to continue trend of improving returns since the low of 2008/09. Dairy industry morale and optimism lifted on the back of this and the report indicates many farmers are now concentrating on debt reduction and looking to further boost productivity.

The data also show typical sheep and beef farm’s profit before tax more than doubled to $148,000 in 2010/11– the highest level for 10 years. This is budgeted to rise to $184,200 this season as better product prices are maintained. Venison returns at above five-year-average levels enabled deer farmers to achieve good financial result in 2010/11, too.

The money flowed through to rural economies as farmers increased spending later in the season on productive inputs, particularly fertiliser. Debt has been reduced through principal repayments and lowering overdrafts. Some have also taken advantage of the good year to purchase capital equipment such as tractors and vehicles.

MAF is predicting before tax dairy profits will ease this season by seven percent to $322,900 for typical farm. more sobering outlook is also painted by Westpac economists in an update of their dairy payout forecasts. Westpac drew attention to falling dairy prices and recent turmoil in financial markets. Accordingly its forecast for the current season’s dairy payout was ticked down to $7/kg of milksolids, little below Fonterra’s opening forecast payout.

Global dairy prices started dropping some months ago, but the finance market turmoil “adds new dimension of uncertainty to the outlook, raising the possibility of confidence-driven drop in prices”. This didn’t eventuate in the latest Fonterra global DairyTrade auction (instead prices continued to gradually slide lower), but Westpac is “not sure the volatility has disappeared for good”.

It is forecasting global growth to slow appreciably (from 5% in 2010 to 4.1% in 2011 and 3.5% in 2012), although it doesn’t expect another worldwide recession. Westpac says the weakness in dairy prices is likely to be concentrated in rich developed economies.

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