The farmers who made the best decisions during tight times were the ones who followed the principals highlighted in the campaign.
They quickly adjusted their business management and onfarm practices to cope with the lower payout.
While the payout for this season is looking fantastic, the principles are relevant regardless of whether it’s high or low. History shows that when the payout rises, so too do farm working expenses (FWE). It also shows just how hard it is to cut back on spending during leaner times.
The graph shows how in the first bumper payout, in the 2007-08 season, there was an increase of $1.20/kg MS in FWE. In 2008-09, when the payout fell dramatically, farmers struggled to reduce expenses from the levels of the previous season. It wasn’t until 2009-10 the efforts of cost-cutting could be seen and by then the payout had improved.
So, what’s your focus for this season?
In Manawatu, boy we are off to a flyer.
We have had a kind winter, cows calved in good condition and some farmers had even cut silage in August.
But let’s not be mistaken, this is just the physical side, which tells us only half the story. The only way of knowing you are really profitable is by monitoring your financial budget, not your vat.
If you haven’t yet looked at your budget for this season it might be time to put the actuals in, versus what you had budgeted. Remember, profit is not what drops out the bottom of a budget. It should be a target you set at the start of the season which you then build the budget around.
If you can do this then you should avoid the danger of letting expenses rise to meet the higher income as often happens when the payout increases. Each time the payout goes up, the profit expectation should be adjusted and costs kept at the same level.
I’m sure there will be some awesome milk cheques coming in this month. If some of the key principals of the Tight Management for Tight Times Workshops can be applied to your business in the good times, you will absolutely capture the cash this season.
Tight management for your farm
Identify where you are now and how you will manage your cashflow for the next 18 months. Focus on what you can control – there are still a lot of things you can do.
• Spend very little time on things outside your control – eg, payout, weather.
• Always do the basics well – grazing residuals and rotation length drive pasture quality and quantity, which drives production.
• Have a game plan, communicate it to staff and your advisory team (banker, accountant, farm consultant, rural suppliers, etc), implement it, continuously monitor results and make necessary changes.
• Before you write a cheque, ask yourself do you really need what you are buying, will it give a return and can it wait?
• Look after yourself and your team. Use the help and support around you.
Abby Hull is DairyNZ’s consulting officer for Manawatu/Horowhenua.
