The survey for the 2018-2019 year showed that operating profit per hectare for owner-operators was $2154. This is down on the previous year’s total of $2238, but above the average for the previous decade of $1696, DairyNZ principal economist Dr Graeme Doole said.
Dr Doole says that volatility will remain a significant challenge for farmers to manage.
Feed continues to be a farmers largest expenditure area at 28.5% of total expenditure. It has been farmers’ expenses category since 2007-2008.
Labour was the second highest operating expense at 21.1% while maintenance and running costs and fertiliser contributed 16.7% and 9.44% respectively.
The price of imported supplement has also risen as covid-19 impacts supply chains.
Prices for wheat and barley climbed strongly, closing about $75 per tonne higher at around $425/T.
Palm kernel prices dipped early in the season, before climbing again to close about $25 per tonne higher at around $275/T. Palm kernel imports decreased 1% from 1.91 million tonnes to 1.89 million tonnes in the year to June 2019.
“We are also now seeing substantial pressure on the balance sheet of farms. Recent data shows us that in the last season, dairy farm sales were down 40% and farm prices down, on average, by 17%,” Dr Doole said.
Mandatory debt payments lifted due to higher interest rates for some lenders and increasing pressure on farmers to pay principal.
“These headwinds are coming at a challenging time for the country. Yet, dairy farms still have a strong cashflow, particularly relative to other sectors, so will play a pivotal role in New Zealand’s recovery,” he said.
Milk production was at a 10-year high of 395kg milk solids per cow while dairy operating expenses per kilogram of milk solids fell 3 cents to $5.10/kg MS.
“There are a large number of factors that could cause the milk price to shift up or down by a decent amount in the next season. Many, but not all, of these are related to the covid-19 pandemic,” he said.
While the results for operating profit and production were positive, increased costs, debt repayment and covid-19 will have a strong influence on farm business performance, Dr Doole said.
The operating return on assets was 4% for owner-operator farmers.
“This is a reasonable operating return however returns from capital gain are now much lower than what we have seen in the last decade or absent altogether. Moving forward, this emphasises the need to increase farm profit through focusing on careful cost management,” Dr Doole said.
Sharemilkers had a positive year with $775 operating profit per hectare – the highest level since 2013/14. Operating expenses for sharemilkers decreased 13 cents to $3/kg MS.
Production per cow and hectare increased from last season from 376-410kg MS/cow and 1072-1222/kg MS/ha. The average sized herd had also lifted from 391-452.
The average cash available for living and growth increased to $134,715 per farm. With increased capital expenditure, drawings and debt, a cash deficit of $12,622 was recorded in 2018-19.
The operating return on dairy assets was at 12.4 percent for sharemilkers, while total return on assets was measured at 18 percent. The level of debt to assets increased to 61.6 percent at close, while term liabilities of $3.78/kg MS was similar to the previous season.
The annual survey is taken from the analysis of 260 owner-operators and 122 50:50 share milking farms across New Zealand.
Farms in Marlborough, Canterbury, Otago and Southland recorded higher operating profits per hectare than other regions. Regional average farm working expenses were lowest in Taranaki and Bay of Plenty at $3.86 and $4.06/kg MS respectively while farm working expenses for the other regions ranged from $4.11-$4.46/kg MS.
