Back Honour the contract

Date: 27 February 2018

What a season!  An incredibly wet winter where, despite their best efforts, many farmers pugged parts of their farms, was followed by a very dry spring where feed supply became very short.  Just when things became very desperate, the rain started falling across most of the country and the grass began to grow.  Many farmers who had destocked early in order to feed what cows remained are now very flush for grass.

The temptation in times like these is to either reduce the amount of maize ordered in, or in extreme cases, pull out of maize silage contracts altogether. There are three main reasons as to why this would be unwise.  These are as follows:

  1. Short term decisions usually have long term consequences

A common cliché says that the difference between successful and not so successful farmers is two weeks.  This cliché reflects the truth that successful farmers play a long-term game and are well planned.  On top of this, they are often planning 8-12 months in advance.  They know how many cows they are farming and set their farm up accordingly.  Farmers who switch in and out of systems by trying to chase pay-out trends usually end up worse off. They usually tend to be in a situation where they are forced to buy feed when they are short of feed, and usually end up paying more for it.

  1. Risk management in the form of a stack of silage makes great sense.

In the early 1980s a young consultant asked a very successful Northland farmer, who seemed to make great profit year after year, what the secret to his success was. The farmer said this: “It’s simple son.  A barn of hay and a stack of silage”.  The farmer was very aware of the risk that variable climate was to his business.  Things haven’t changed much since then.  Some long-term data from DairyNZ’ s Scott Farm shows since 1979, pasture growth has varied around 8tDM/ha/yr. between the best year and the worst year.  As it is impossible to tell if one season is going to be better than the next, some kind of risk management is critical.  You may have heaps of feed now but as sure as chickens lay eggs, there will come a time when pasture cover is low.  Remember the importance of a stack of maize silage to cope with this.

  1. You and your feed supplier are in this together

It is said that elephants have long memories.  In some things, farmers have even longer memories.  When contracts get broken by farmers wanting to pull out of an agreed volume of maize or an agreed price, trust between the two parties is broken along with that relationship.  While this is pretty bad in itself, inevitably when the time comes in the future where the farmer is wanting to buy some more feed, the grower will either lift the price to cover the risk of another broken contract or refuse to supply.  Purchasers often forget that the grower is also in business and needs to sell their product at an agreed price to stay in business.