Budgeting, Alan and Sharron Davie-Martin (North Canterbury)

Know the business well
Always have the farm information up to date so that time spent with rural professionals, (like accountants), can be spent looking forward and planning. The key is to be proactive and in a position to make informed decisions quickly.

Review budget regularly
Review and update budget every month when cash manager is updated. We try and work on a no-surprises type of budget, and then if there is a surprise, it will be that we do better than budgeted, particularly with the costs.

Budget updates
Keeping the budget up to date is important from a tax calculation point of view, as tax payments can be more closely aligned to the year’s actual performance rather than the previous year which fits better with cash flow. This is particularly important as the stage of business development for this business means tax liabilities have a significant impact on cash flow.

Debt
Repayment of debt has always been a priority, which makes life a lot easier when downturns occur.

Detail
Attention to detail, both on farm and financially is very important.

System
The farm has a simple system that is easy to implement.

Communication
Networking and talking with peers and like-minded farmers as well as rural professionals is key to successfully progressing the business. Be open minded and always look for ways to improve. Mentor others.

Environment
Be mindful of our environmental responsibilities and always try to do better.

• The farm operates a system 4 production system.
• The dairy shed is a 40-a-side herringbone shed.
• It is 0.7km from the farm dairy shed to the furthest paddock.
• The farm is well subdivided, with good internal lane ways and water supply that exceed minimum standards. Planned start of calving is 1 August.
• All cows are wintered on the support block, so no external grazing is required. The cows are wintered on fodder beet, silage and hay.
• Pasture management and feed budgeting are given priority. Farm cover is measured and feed budgets updated weekly for 9 months of the year.
• The policy for grazing is 'pasture first' and post grazing residuals are monitored closely. Supplement is only added if they are dropping below 1500 kg DM/ha.
• Improving efficiency of supplement use is ongoing with the aim to minimise wastage from harvest through to storage and feeding out.
• A 195 effective hectare dry land block 1 hour from the Dairy Farm was purchased in October 2020. This provides grazing for all young stock, wintering for the herd and about 75% of the imported feed for the milking area.

Support block
On the support block, 25ha is planted in fodder beet for winter feed. In spring, the area is re-sown with permanent pasture. 20 ha of new ground on the support block is sown with forage rape in the spring for summer feed. This area will be sown with permanent pasture in March.About 550-600 t DM of pasture baleage will be made in the late spring and early summer. 350-400 t DM of this will be transferred to the miking platform. The remainder will stay on the support block for use there.

Milking platform
3-4ha of fodder beet are sown in November on the milking platform. The area will be returned to permanent pasture the following spring.This is to provide a bulk of autumn feed for the milking herd, for milking and weight gain. It also means the herd can be transitioned to eating fodder beet well in advance of going to the support block. When they leave the milking area they are already eating 5kg DM of fodder beet, so it only takes about 10-14 days to get them to 9-10kg DM (70% of total intake). The success of this does depend on getting good yields, (30 t DM per ha), which makes the cost per kg DM lower than other feed options.Supplements made on the milking platform vary depending on pasture growth rates. About 40-60 t DM of baleage is made on average.

Supplements
Supplements used are pasture baleage, hay and PKE. The amount of imported supplements fed on the milking platform depends on pasture growth with feed budgets based on 400-500 t DM, (740 to 925 kg DM/cow). Pasture silage and PKE are fed on the milking platform and baleage and hay is for winter cow feed on the support block. The relative proportions fed may vary depending on the relative prices and costs to transport. If PKE prices are low enough it could be more economic to feed more PKE and sell surplus baleage from the support block which would more than offset the costs.

Policy
Farm policy is to always have a reserve of 100 t DM of supplement (silage/hay) on hand, over and above the annual requirements for supplement. This is insurance for severe weather events like heavy snowfall, or for when irrigation restrictions are enforced.

• The herd has been sire proving scheme, (SPS), for over 30 years so herd testing and semen costs are discounted. AB is for 6 weeks with SPS bulls, followed by 1 week short gestation Hereford semen, (as a marker,) then 3 weeks AB using short gestation Kiwi cross semen.
• The heifers are synchronised and mated to AB then run with Jersey cross bulls that have been bred on farm. Mating is for 9 weeks. Using own bulls reduces the risk of exposing the farm to outside animal health risks.
• Young stock live weights are monitored, and industry recommended live weight targets have always been exceeded.
• Achieving recommended cow condition and pasture cover targets for the farm at key times are critical, and decisions for culling and drying off are based on feed budgets, cow condition scores and calving dates. Protrack was installed late 2017-18 so that better information is available to assist with this decision making.

• The contract milker employs two full time staff and some part time and relief staff.

• A part time staff member, (about 0.6 ), is employed to help manage the support block and do work on the milking area that is the owners responsiblity e.g. repairs and maintenance.

• The farm owners have reduced their time involved with the day to day running of the dairy farm.

• They live off-farm and their input is 0.25 . Their role is largely in governance and administration, plus overseeing any R & M on the support block near Rangiora.

• Good communication with staff is vital to the success of the business and to ensure low staff turn over.

• Manuals with processes that meet OSH industry standards are on farm and implemented.

Best practice
A proactive approach is taken to identifying and implementing environmental best practices that are applicable for this farm. An example of this is the farm currently being part of a study for the Amuri Irrigation Scheme, looking at the impact of wintering.
Irrigation
The farm irrigation system has soil moisture sensors which drives the irrigating decisions. The focus is on efficient water use. Soil moisture is monitored frequently and irrigation is based on this. Effort is made to ensure irrigators are well maintained and operating to optimum efficiency.
Nitrogen
Nitrogen use is below 190 units of N per hectare. Timing and application rates and sources of N have recently been reviewed to ensure that the farm continues to stay within the 190 kg per ha cap for synthetic N that is part of the latest National Policy Statement for Freshwater Management.
Farm environment plan
The farm belongs to the Amuri Irrigation Scheme. One of the requirements is to have a Farm environment plan, which is audited every 2 years. This gives focus to what needs to take priority and helps when developing the budget each year.
Runoff
Buffer strips are used on all cropped areas to minimise runoff. Crops and pasture are direct drilled where possible and fertiliser applied with the seed.
Wintering practices
Some sites on the support block have been identified as being more vulnerable to wintering practices. These areas will not be cropped and any re-grassing will be grass to grass. This does limit the subsequent pasture yields compared with a cropping regime, but environmental best practice is deemed to be a priority in this instance.
Soil testing
Since 2012 the policy has been to soil test every paddock. The farm now has a good library of data on the fertility of each paddock, and fertiliser applications are tailored to be paddock specific.
Effluent
Effluent is spread via pivot irrigators and can be applied to over 90% of the milking effective milking area. The farm has 26 days of pond storage.

*These KPI's are based on cash book actuals to 31 May 2021 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.

Click here for PDF of 2020-21 budget v actuals

Comments

• The financial performance for the 2020-21 season is difficult to compare with the budget or previous seasons as a 195 effective ha dryland support block was purchased mid-season and the 90 effective ha irrigated leased support block was relinquished.
• The new support block had a new stock water system, major upgrades to housing, improvements to fencing, yards and lanes plus significant capital lime, (about 4 t/ha), and fertiliser applied. Some of these costs are included in the farm working expenses shown but may be capitalised once the final financial statements are completed.
• There has been increased spending on supplement harvesting, cropping and re-grassing to improve pasture and ensure there was sufficient feed on hand to winter the herd in 2021.
• It is estimated that about $1.80 per kg MS, (approximately $3,500 per ha), of additional costs relate to bringing the new support block into the farm system.
• Production for the season was 5% up on budget as the budget was conservatively based on the lowest of the previous 4 years milksolids. The 2020-21 seasons final milksolids was very similar to the 2019-20 season.

Other points of interest

• Another mild winter and early spring, with no major rain or snow events, made for a good start to the season. A cold snap in late September/early October meant growth rates were slower than previous years and were 10 days later reaching the point where growth rates exceeded demand. November and December were wetter than usual.
• No supplements were made on the milking platform which was down on the 2019-20 season where 7% of the farm was harvested for silage.
• PKE fed for the season was on budget, and equated to 327 kg DM/cow. Total imported supplements fed including supplements imported from the support block was 748 kg DM/cow.
• Pasture harvested for 2020-21 of 16.5 t DM/ha was 12% down on the previous season.
• The 6-week in-calf rate of 66% (E), was disappointing, (2019-20 was 70%), and could be partly due to the low pasture quality resulting from lower sunlight hours during the wetter than average November and December.
• N applied for the year was 191 kg N/ha. This is over 50% less than the previous year.
• 36 beef calves were reared which was not originally in the budget. This decision was made as extra stock was needed for the new support block.

*These KPI's are based on cash book actuals to 31 May 2020 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.

Click here for PDF of 2019-20 budget v actuals

Comments

• 2019-20 was the first full season being self contained for wintering on the support block and milking area and so is more indicative of a status quo financial performance.
• The operating profit per ha for the year is estimated to be $5,534. This is 42% up on budget and is due to income being 12% above budget and operating expenses being 1% below budget.
• Farm working expenses, (FWE), of $3.83 per kg MS or 9.3% below budget and are more in line with the status quo costs for implementing the current farm plan of $3.80-$4.00.
• Operating expenses of $4.53 per kg MS are 4.7% down on budget. They include $0.15 per kg MS of non-cash adjustments to allow for the decrease in the feed inventory.

Other points of interest

• The season started with another mild winter early spring with no major rain or snow events which made for a good start to the season. A cold snap in late September/early October meant growth rates were slower than previous years and were 10 days later reaching the point where growth rates exceeded demand.
• Spring and early summer pasture surpluses were not as great as expected so supplements made for the year are less than budgeted. The shortfall was covered by having more supplements left over from the start of the season. 
• Imported feed used was 485 kg DM per cow of, made up of 60% PKE and 40% baleage from the support block or inventory. This is up slightly on the previous season of 471 kg DM per cow.
• It has been a more normal irrigation year with 108 irrigation days and 569 mm water applied for the year. Hot dry conditions in January and February put some pressure on the irrigation scheme resulting in water restrictions but the overall impact was minimal.
• Pasture and crop eaten on the milking platform is 18.7 t DM per ha.  This is up 0.8 t DM per ha on last season which was the highest for the farm.  The increase is likely due to several factors including increased focus on efficient use of supplements and grazing residuals, more efficient water use now the farm is on the Amuri Irrigation scheme and the growing of 2-3 ha of fodder beet for autumn use.
• The last of the herd was dried off on 29th May. Cow condition is on target for BCS of 5.0, (heifers 5.5), by calving. Pasture cover was 2,200 kg DM/ha at drying off, (100-150 kg DM/ha above target), and is well on track for 2,650 kg DM/ha by the planned start of calving in early August.

^{*These KPI's are based on cash book actuals to 31 May 2019 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.}

^{Click here for PDF of 2018-19 budget v actuals}

Comments

• The operating profit per ha for the year is estimated to be $4,346 which is a very pleasing result.  This is 28% up on budget and is due to milk and livestock income being 8% above budget and operating expenses being close to budget, (0.5 % up on budget).
• Cash revenue was up on budget due to a higher milk price received, (up $0.26 per kg MS despite no dividends received for the year) and more milksolids produced as well as higher than budgeted cull cow prices and the sale of  additional weaner heifer calves reared.
•  In 18-19 the farm moved from wintering the mature cows externally to wintering all stock on the support block and eliminating the need to use external grazing. The 18-19 actual costs had winter grazing costs for the winter 2018 and increased harvesting and cropping costs in preparation for winter 2019. The farm had 284 t DM more supplements on hand at the end of the season plus an additional 7.5 ha of fodder beet.
• Farm working expenses, (FWE), of $4.26 per kg MS, were 6 % above budget. This is largely due to due to additional costs for supplements made and cropping/re-grassing plus animal health costs were up 30%. With the extra wintering costs removed the FWE are closer to $3.95 per kg MS.
• Animal health costs were up due to the decision to aggressively target the high empty rate for the herd.  More and early treatment of non-cyclers was undertaken.  This has resulted in an improvement in submission rate, (95% for 2018-19), 6 week in-calf rate, (71% from 2018 mating, for spring 2019 calving), and an empty rate of 16%.  The empty rate is still a concern but it is lower than previous years.
• When the increase in feed on hand is adjusted for operating expenses were $4.46 per kg MS which was $0.10, (2%),below budget, and slightly less than the previous 3 year average of $4.51 per kg MS.

Other points of interest

• Milk production for the 18-19 season was up 3% on budget. Production was on budget by early December, so the gains were made in the latter part of the season.  Most of this was through December and January with excellent pasture growth.
• The extreme dry from late January to March resulted in water restrictions and limitations for irrigation. This also coincided in very high spot prices for PKE.
• During this period when pasture growth rates were lower than expected the decision was made to stay within the budgeted contracted amount of imported feed and use stocking rate to match feed supply. 
• Culling was carried out earlier, and more strategic drying off was done based on cow body condition score, (BCS), information. This was the first year that external BCS assessment was carried out. It made decision making simpler, and meant target BCS for the herd was achieved by drying off.
• The last of the herd was dried off on 29^th May. Cow condition is on target for BCS of 5.0, (heifers 5.5), by calving. Pasture cover was 2,200 kg DM/ha at drying off, (100-150 kg DM/ha above target), and is well on track for 2,650 kg DM/ha by the planned start of calving in early August.
• By early December irrigation days were 40% less than average because of the very wet November and early December. However the extended dry period from late January to March increased irrigation requirements and irrigation days for the season finished at 79 days, (up 13 on the previous year).