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Fonterra's Farmgate Milk Price & Diminishing Marginal Returns

Understand Your Farms Financial Position 

Fonterra has recently revised their forecast farmgate milk price for the 2023-24 season to a midpoint of $7.00kgMS with a range of $6.25-$7.75kgMS. Their advance rates have also been lowered to reflect this update.

As a farmer, you are a price taker and unfortunately that means you have to ride the wave that is coming behind you. Although it often feels like there is a lot of things you can’t control, you can take control of understanding your farm finances and in particular, where you haven’t received the best return from in the past.

This is why you need to know about diminishing returns if you don’t already!

It is an economics concept that is very easy to understand and you can apply it to your farming business.

Put simply, as you increase the level of input (feed and fertiliser for example), the additional output, or return gained from the unit decreases over time.

For example, if your cows are 2kgDM/c/d short of their daily requirement, increasing their diet by an additional 1kgDM/c/d will offer a great return, the second 1kgDM increment will still generate a return but less than the one prior. This pattern continues until before you know it, the return becomes negative.

We know how busy you are on farm with calving and so now isn’t the best time to have a deep dive into your accounts, but please do make the time and improve your financial understanding of your own business (we are actually doing it ourselves now while your calving). Assess where the cut off point for you is going to be regarding the expenses that you have greater control over and pick them off, one by one.

Keep talking to your on and off-farm team, family and friends and we will ride this wave out the other side.

Regan & Laura @ RECO