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Without doubt, the weather conditions are creating challenges on Taranaki dairy farms at present. There are many planning strategies both on and off farm that can be adopted during this time. As a result of the extremely dry season, many farmers are moving to milking once a day, or drying their cows off earlier than anticipated. Any reduction in milk production has a direct impact on finances, so if you’re in this position, it is vitally important to consider up to date, financial information to aid your decision making process..

Budgets for many farmers will have been completed for the year making projections of what is expected to happen for the farming financial year, typically June to May.

The budget done prior to June 2024, will likely not have included changes that have happened over the season, and it is highly unlikely that you have budgeted for a 1 in 50-year drought! The budget will also likely, not look beyond May 2025, so does not give a view of what happens between the time when milk production ends and re-starts again, typically in August.

Reducing milk production or drying cows off earlier than planned creates a period where cash does not come into the bank account which goes beyond a regular year, this cash gap is likely to be longer than  you have budgeted for. For example, for Fonterra suppliers, if cows are dried off in April or earlier, the result is that no income will be received for 3 months or more from June to August, when the first retrospective payment is received. So it’s crucial to know whether you have enough cash reserves to cover your expenses during the non-production period.

We recommend undertaking a revised cashflow forecast. A cashflow forecast is a financial planning tool that you can use to get a view into the future to determine exactly what cash shortfall you may have.

By knowing how much your cash shortfall may be over the May – August months, you create the opportunity to take proactive steps, like having discussions with your bank and ensuring you have an adequate overdraft facility in place.

Taking a look at your cashflow forecast, will not only avoid and alleviate some of the financial pressure you may feel but also put you in the best position for when production resumes, so that you can capitalize on the higher payout forecasted for next season.

Our team can assist you with revising your cashflow forecast and can support you to build a plan to get through the coming months of non-production with confidence.

If you’d like us to help, reach out to the team today!