What are some financial tools to lower your financial farming risks?

As a farmer, you have access to financial tools that help you deal with the unpredictable nature of farming. These tools are really useful for handling the ups and downs of market prices and costs, which is especially important for dairy farmers who often see milk prices change. You can protect your income from dropping milk prices by setting the price in advance through futures contracts or options.

Lock in pricing

In New Zealand, if you're a dairy farmer, you can lock in the price of your milk. For example, if you supply to Fonterra, you can fix the price of up to half of your milk with their programme. It's important to know your break-even milk price and to have a plan that helps you make decisions without getting swayed by emotions or guesses. You can figure out your break-even price by looking at your farm's past financial records, or using tools like DairyBase, and you can predict future break-even prices with your budget.

Interest Rates

It's also key to manage your interest rates to keep your finances stable. You can use different financial tools to control how much you pay on loans, like locking in interest rates to prevent them from going up, which can save you money and increase your profits. Having an overdraft, or a line of credit, can also give you the cash you need for day-to-day farm work.

Feed Costs

Managing how you buy and store feed is important to keep costs down. Buying feed in bulk, and having contracts for it, can save you a lot of money. This helps make this big farming expense more predictable and easier to handle, which is good for your financial planning and keeping costs the same all year round.

To protect your farm business from changing market prices, use strategies like futures contracts to lock in costs for things like feed, fertiliser, and fuel. This helps manage risks and could make banks more likely to lend you money because your income is more predictable.

Use forward contracts to set prices for your products, such as wool or milk, ahead of time. This makes it easier to plan your finances and trade, but you need to understand the market well to benefit from these contracts.

For farmers, especially in New Zealand's dairy industry, it's important to use financial tools to deal with price changes and make your business stronger. Knowing the market and your options is key. Our experts can help you navigate these areas and strengthen your farm's finances. Reach out for more information.

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