logo
Why undertake? How to undertake? What would happen if? What to consider? Additional resources

Sensitivity analysis is a strategy you use to understand how different changes can impact your dairy farm's cash situation and overall business. This page explains how using this tool at budget time can help you avoid nasty surprises and seize good opportunities.

At budget time, undertaking sensitivity analyses and creating scenarios will aid your decision making, giving you a ‘what if’ picture and reducing chances of any unwelcome surprises.

Why undertake sensitivity analyses? 

A sensitivity analysis on your budget helps you:

  • Gain a clear picture of how exposed your cash position is to risk
  • Understand the greater implications seemingly minor changes can make your broader business and financial picture
  • Understand how your farming business can take advantage of good opportunities
  • Act proactively when unexpected or adverse situations arise

How to undertake sensitivity analyses

Use DairyNZ's annual and monthly cashflow budgeting templates in budgeting tools to automatically complete sensitivity analyses.

The sensitivity tables look at the variability of cash surplus/deficit received when exposed to changes in payout, production and farm working expenses.

Sensitivity analysis example showing changes to production and payout
Sensitivity analysis example showing changes to production and payout.

What would happen if?

  • Your production decreases by 5% or 10% due to drought?
  • Your production increases? Milk income lifts or drops?
  • Key expenses spike (e.g. fertiliser costs increase by 15%)?

Consider these things in your risk and sensitivity analyses

  • Milk prices
  • Cost of debt
  • Production
  • Cow health expenses
  • Farm working expenses (actual)
  • Environmental risks - effluent, water quality, sediment, water-take
  • Weather patterns
  • Compliance costs
  • Media policy
  • Awareness of the local community and their perceptions.

Additional Resources

Quick cash budget

/tools/quick-cash-budget/

Annual Cash Budget Template

/resources?spotlight=7892

Fonterra Monthly Cashflow Budget 2023 24 Dec 23

/resources?spotlight=8798

Miraka Monthly Cashflow Budget 2017 18

/resources?spotlight=8806

Oceania Budget Template

/resources?spotlight=8800

Ocd Monthly Cashflow Budget

/resources?spotlight=8802

Synlait Monthly Cashflow Budget

/resources?spotlight=8804
Last updated: Sep 2023
Share:

Related content

Reece Cox, a New Zealand dairy farmer, working on his farm budgets at a computer
Starting your budget

Business

3 min read

A person using a laptop
Cash Management

Business

2 min read

A close up of a dairy farmer in overalls holding an iPad.
Tactics for managing your farm business

Business

3 min read