GIPPSLAND FARMER FORUMS

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GIPPSLAND FARMER FORUMS

• MARCH/APRIL
• 2009

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OUR FRAGILE INDUSTRY
A fragile industry struggling for balance into
the future!
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Reasons for a fragile industry

• A reduced ability to grow and direct harvest
  pasture (natural factors)
• Increased capital values higher equity so
  higher borrowing ability
• Higher milk prices have led to expansions that
  often involve short term debt and employed labour
• Processors have increased their activity in
  financing and linked this to milk payment.
• Increased opportunity has led to increased
  share and lease arrangements with short term debt
• Increased dependence on the profitability of
  marginal milk
• Lack of understanding of the fundamentals of the
  business and a perception that more is better and
  dilution is the solution
• A lack of acknowledgement of the risk of
  expenditure and the concept of marginality.

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Description of a well managed, moderate risk,
financially balanced dairy business

• Equity above 65 with less than 20 debt in short
  term repayment periods
• 3.0 4.0 tonne per cow consumed as pasture or
  homegrown forage and no more than 25 of this
  being reprocessed e.g. silage
• Less than 40 of total feed purchased/imported
  supplements
• Significant owner/operator labour (less than 30
  paid labour)
• Good management

In your opinion what percentage of dairy farms in
this district get an 80 score ?
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HISTORICAL MILK PRICE AND FARM WORKING EXPENSES
(FWE) TRENDS

• Notes
• No operator labour (0.80/kg MS), depreciation
  (0.20/kg MS) or return on asset (1/kg MS for
  5) incl.
• Dry areas may need to add 0.40 - 0.50 /kg MS
  extra
• To hold a 2005/2006 position a milk price of
  4.89/kg MS (36.4 c/L) would be required
• Livestock sales normally account for an
  additional 0.25/kg MS
• Pasture growing cost should decrease by 25
  40/T DM in 2009/2010

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Critical Milk Price and Production Cost Issues
for Six Balanced Farms (80 Scorecard)

• Remember all these get an 80 Scorecard
• All long term debt is interest only and theres
  less than 20 short term debt
• Modest drawings (50,000) and no capital expense

THESE ARE MODELS! WHAT IS THE REAL WORLD SAYING??
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REAL WORLD FIGURES
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TACKLING THE MILK PRICE DROP COVERING ALL THE
BASES
O P E R A T I N G S U R
P L U S
DEBT / PERSONAL /CAPITAL COMPONENTS OF THE
BUSINESS

• POTENTIAL AREAS OF ADJUSTMENT
• Capital expenditure or repayment
• Debt structure
• Annual debt servicing
• PAYG tax
• Drawings

• Pasture,crops
• Resowing / sowing
• What/when
• Nutrients
• type,
• how little
• alternatives
• New crops / cereals

• Supplements
• How much
• When
• Quality

SO WHATS USEFUL TO DO?

• Irrigation
• Availability
• Issues

• A monthly cash flow April May
• A lean, mean bare bones annual budget for
  2009/2010
• A milk price required for your business to be
  break even (/kg/MS)
• Your farm working expenses (cash production
  costs) per kg MS
• The needed to cover trimmed personals and debt

3. Semi Fixed costs e.g. labour

• 4. Fixed Costs rates, insurance,
  administration, R and M

What is absolutely certain unless pastures and
crops box is maximised it will be even harder!
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Preliminary analysis shows that infant deaths in
developing countries may be 200,000 400,000 per
year higher on average in 2009 2015. Those
hardest hit are already on the bottom of the
pile Andrew Hewett, CEO Oxfam Australia

• As we confront 2009 in the dairy industry
• Keep perspective
• Check the balance of your own business
• Focus on what you can control.