Breakeven milk price
What is a dairy farm's breakeven milk price, and how does a bank use it?
ONE OF 180 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A dairy farm's breakeven milk price is the payout per kilogram of milk solids at which its working expenses, interest, loan repayments and the owners' drawings are just covered. A bank sets it against the range the price has actually moved through: a farm whose breakeven sits well below the low seasons can carry its debt through the cycle, and one whose breakeven sits near the average depends on the good years to repay. It is worked before drawings and after, because a family's living costs are as real a claim on the milk cheque as the bank's.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Cash conversion cycle
- Quality of earnings
- Debtor days
- Debt service cover ratio (DSCR)
- Interest cover ratio
- Debt to EBITDA (leverage)
- Dividend payout ratio
- Debt per kgMS
- Fixed charge cover ratio (FCCR)
- Global cash flow
- Adjusted EBITDA
- Creditor days (DPO)
- Inventory days (DIO)
- Maintenance capex
- Gearing
- Tangible net worth
- Downside case
- Debt-like items
- Operating leverage
- EBITDAR
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