Cropping farmers have historically had big issues with cash flow with products often being stored for long periods before sale.
The new financial climate has put that industry under more pressure and many are converting to dairy.
Others have adapted to their situation ,and a novel contract that fixes the price of grain to the dairy payout, provides sureity to both parties cash flow.
Innovative thinking and ideas are often born in adversity, and some in the market thrive against all odds.
There are various rules of thumb for feed prices relative to payout but rarely are the two linked in contract terms. However, one North Canterbury dairy farmer is doing just that, and not just for the coming season.“We’ve got a maize [silage] contract for five years based on payout, and a lucerne contract for five years as well,” reports Rural News.
Now he’s done a deal to procure grain based on a percentage of payout for the coming three years as well.“I have set up my farming system for high production and high inputs and I need them all the time. This puts a bit of security in the system because I know the cropping farmers are going to grow it for me and I know what I’m going to pay when the payout is low, and I know what I’m going to pay when the payout is high.”
Stuart Wright, Sheffield, is one of the growers supplying. While he says it was the dairy farmer’s initiative, it will be helpful to the management of his 450ha operation.“It’s not all my crop by any imagination but it is 200t every year where all I have to do is concentrate on producing quality wheat because the marketing is already taken care of.”In low payout years Wright accepts he will share the pain, but equally should the payout hit $8/kgMS, he’ll share the joy.“As a dryland cropping farmer to be sustainable I really need $450/t to put some profitability back in the business.
The dairy farmer says such low prices are part of the problem, prompting some growers to switch in and out of the crops he needs. Jon Nicholls, national manager of LIC’s consultancy business FarmWise, says while it has been setting up similar payout-linked arrangements on leased land for clients, he’s not aware of any such feed terms to date.
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