MyFarm executive director Andrew Watters said the syndicate, launched in late September, forecasted it would generate positive returns even if the milk price fell as low as $4.20/kg MS.
“Milk prices have risen 4.3% a year since Fonterra’s inception, but in the current season that trend appears to have reversed. MyFarm recognises this volatility is a fact of life.
“We expect milk prices to return to the long-term average of around $7/kg MS, possibly as soon as the 2015-16 season. However, we understand we need to operate farming systems that give our syndicates the flexibility to respond to these short-term milk price changes as well as fluctuations in onfarm costs.
“Hokonui’s ability to graze its entire stock onfarm sets it apart from many of its neighbours in Southland and further afield. Notably, it protects the syndicate from volatility in grazing costs, which have been rising at an annual rate of 6% to 7% a year in many areas.
“Farms in good locations, and where all stock can remain onfarm, are becoming increasingly rare; this represents a significant shift in MyFarm's experience of buying farms over the last twenty years,” Watters said.
“Hokonui is also reducing peak milking cow numbers and changing its feed crops from brassica to higher yielding fodder beet and forecasts a minimal reduction in production. The cropping changes will allow it to increase land under pasture by 30% to 35%, while the small reduction in stock will reduce costs and improve environmental performance.”
MyFarm’s 47 dairy farming syndicates across the country are taking similar steps to ensure they make the most of their pasture and reduce their reliance on grazing and supplements.
“Our syndicates are also cutting all non-essential expenditure and are putting a brake on development. Debt levels, averaging less than 30% of total assets across MyFarm’s syndicates, also provide a significant buffer to the lower returns.
“We remain positive on the medium and long-term outlook for dairy farming. However, in the meantime, as we work through this period of low prices, we need to do as much as we can to manage costs,” he said.
