Break Even Milk Price Calculator NZ
This works out the milk price your farm actually needs, in the same dollars a kilogram of milk solids that the payout is quoted in, so the two can be held side by side without any further arithmetic. Everything going out goes in: farm working expenses, interest, rent or lease, tax and drawings, less any income that is not milk. Divide by the milk solids you produce and you have the number. The choice that matters is whether drawings and tax belong in it. Leave them out and you get a lower, more comfortable figure that answers the question of whether the farming operation washes its face. Put them in and you get the figure that tells you whether the business and the household both get through the season, which is usually the question being asked. Both versions are legitimate and they are often quoted without saying which is which, so this page shows you the number with them and the number without, side by side and clearly labelled. The comparison underneath sets your break even against the current forecast and against both ends of the range that forecast was published with, because a farm that clears the forecast but not the bottom of the range is carrying a risk worth seeing before the season rather than during it.
Farm costs only means working expenses, interest and rent, with drawings, tax and principal left out. It is the more flattering figure and answers a different question.
| Milk price | What it represents | Surplus or shortfall |
|---|---|---|
| $8.00 a kgMS | The bottom of the published range | -$34,000 |
| $9.25 a kgMS | The current forecast | $74,750 |
| $10.50 a kgMS | The top of the published range | $183,500 |
At the forecast this farm is ahead by $74,750, and at the bottom of the range it is short by $34,000. Each row is the milk price less your break even, multiplied by production.
How it works
Everything going out is added together, any income that is not milk is subtracted, and the remainder is divided by the milk solids produced. That gives dollars a kilogram of milk solids, the same unit the payout is quoted in. The farm costs only figure repeats the exercise with drawings, tax and principal repayments taken out, which is why it is always the lower of the two. Neither is more correct than the other, they answer different questions, and the reason both are shown is that break even figures get quoted without saying which version they are.
Why other income belongs in it
Because it reduces what the milk has to carry. Stock sales, calf sales, grazing income and anything else the farm earns all offset the costs before the milk price is asked to cover the rest, and leaving them out overstates the break even. On many farms this is a substantial number, and a break even quoted without it is not comparable with one that includes it. That is another reason to be explicit about the version rather than trading a single figure around.
Worked example
A farm producing 87,000 kilograms of milk solids with $430,000 of farm working expenses, $185,000 of interest, no rent, $95,000 of drawings, $28,000 of tax and $40,000 of principal repayments has $778,000 to cover. Take off $48,000 of other income and $730,000 has to come from milk, which is a break even of $8.39 a kilogram of milk solids. On farm costs only, at $567,000 net of other income, it is $6.52. Against a forecast of $9.25 the farm is $74,750 to the good, but against the bottom of the published range at $8.00 it is $34,000 short, which is the number worth planning around.
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