Budgeting, Anne-Marie and Duncan Wells (South Otago)

View/download PDF of updated budget

Key Points

• Overall, pasture growth has been better than average, with a drier start to the season.
• Persistent rain since late September and a flood event in early October have impacted production a little and delayed crop planting.
• Production to date is 5% down on budget, (and last season), the result of a slightly slower calving rate and fewer cows.
• Total farm working expenses are under budget and likely to finish at about $6.40-$6.50/kgMS. 
• All heat detection this season was based on information from the Digital monitoring of animals which has eased workload over this period.

Comments

The season started off drier than usual over the winter and early spring, but since late September is has been wetter. Overall pasture growth for the season to date has been better than previous years.

Production to date is about 5% behind budget, (and last season). This is from 626 cows milked at the peak, 10 down on last season. A slightly slower calving rate in the first 6 weeks as well as lower numbers has contributed to lower than budgeted milksolids early in the season and persistent rain at the end of the year has compounded this. As per normal practice the cows were milked once a day until the last week of August before moving to twice-a-day. 

Supplements fed for the season to date is about 400 kg DM/peak cow milked, which is up slightly on budget. The herd peaked at 2.10 kg/cow/day from pasture, grain, molasses and baleage which is similar to last season, (2.14 kgMS/c/day).

A heavy rain event in early October delayed the planting of 11 ha of fodder beet. The delayed planting, as well as brown beetle attack has impacted the crop, with yields likely to. It is expected they will be at the lower end of average yields so more like 22-25 t DM/ha rather than 25-28 t DM/ha

Another 9 ha of whole crop barley for silage was planted in early November. This was harvested February 10th for pit silage with yields of about 9 t DM/ha. This area has just been regrassed along with another 2 ha of grass to grass.

With the winter crop area and the newly regrassed areas the effective milking area is currently 188 ha.

With the lower stocking rate there was a surplus of pasture in the late spring on the milking platform, with about 30 ha harvested for baleage. This is up on last season. The budget was for no baleage made on farm. 

Nitrogen applied to date is slightly below budget as the weather limited the number of applications able to be made. To date there have been 2 applications of N over the whole farm. 

The revised budget suggests milk income will be similar to budget (which was updated in November so includes the increased milk price). While production is down on budget, the forecast milksolids for the season has been kept at 310,000 kg as the feed situation and cash flow are such that it is possible gains can be made in the latter part of the season. 

Total forecast farm working expenses are under budget and still likely to finish at $6.40-$6.50 /kgMS.

Current position

Current daily production is down on last season with the herd producing 1.60 kgMS/cow/day, from 618 cows, milking twice a day (631 were milking this time last year). Cow intakes are estimated at 16 kgDM/cow/day made up of 14 kg DM of pasture and 2.0 kgDM of grain. Cow body condition score is 4.5 which is similar to previous years. 

Pasture cover is 2,200 kg DM/ha and growth rates for the last week have averaged about 45 kgDM/ha/day. At current per cow daily intakes of pasture demand is 46 kgDM/ha/day on the effective area excluding crops so cover is just holding. The grazing rotation is 27 days, which is standard for this time of year.

Young stock are all off the farm.

Looking forward

There has been some rainfall in the latter half of January but the first half of February has been hot and dry and pasture growth rates have dropped form 60/day late January.

The plan is to continue on the current grazing rotation and just adjust the level of supplements fed to maintain pasture cover at a reasonable level and protect growth rates.

There is 380 kgDM/cow of supplement on hand, (or budgeted to purchase), that is available to be fed out between now and the end of the season (May 31st). In addition there is another 160 kg DM /cow of fodder beet that can be fed this autumn. This equates to about 5 kgDM/cow/day from the 17th February to the end of May.

The plan is to continue with in shed grain feeding and transition cows onto fodder beet from mid-April. Some baleage and it silage may also be fed out.

Feed demand will be managed over the next few months with progressive culling so milking numbers by April are at 580 and 550 for May.

Once a day milking will be used based on feed available and cow condition and the drying off date will be as close to the end of May as feed supply allows without compromising both pasture cover and cow conditions at the end of May. A small number of “at risk” cows will be dried off earlier if necessary.

One more application of 35 kgN/ha is planned for March/April. This will be a total of 95-105 kgN/ha for the season.

Calving and reproduction

• The calving pattern for the 24-25 season was 68% after 3 weeks, 87% after 6 weeks and 99% after 9 weeks. The 3 and 6 week rates are slightly down on last season.  
• Submission rates for the first 3 weeks were 89% which is similar to last season, (90%). Heat detection was all based on information from the cow monitoring devices. 
• The decision was made to reduce the length of mating by one week. The reasons were twofold – it meant less workload for staff over the Christmas New year period, (AI stopped on December 24th, plus it meant no short gestation semen used for the last week so have avoided a week of terminal calves.
• This has come at a cost, as the recent pregnancy testing shows an empty rate of 19% which is higher than previous years. The increase is explained by the shorter mating period, but it has tightened up the calving spread for next season.
• 6 bulls were leased to run with the yearlings as per budget. This is 3 less than budget.
• No bulls were leased for the herd as only AI was used.
• As per budget 166 heifer calves were kept this year, 164 are still on hand. 

Other points of interest

• Loans at low fixed interest rates have all come to term so there is currently a lot of the debt at a higher the floating rate. While this has been budgeted for, it means interest costs this financial year are still higher than last year despite interest rates starting to fall.
• Any cash surplus after tax provision, financial and capital expenditure is prioritised to debt repayment.
• Labour costs are down. The budget must have been too high and was based on last season. The farm is now operating with a smaller permanent crew than budgeted, and have been able to use casual workers just for milking’s rather than adding another FTE. A Lincoln student was employed over the summer to cover time off.
• More baleage has been made and it is likely about 55-60 t DM more grain will be purchased. The average cost of the grain for the season is likely to be up as well by $30-40 /t DM. The grain this year has been more wheat than barley.
  
  
  

M - Milk Production
I - Integrity
L - Livestock
K - Keep it Clean

Simple Farm Goals

• Milksolids production 310,000 kgMS
• No Fonterra Grades
• Average SCC <100,000
• 6 Week In-calf Rate: 78%
• Environmental Goal – being ahead of the game and future focused
• Provide a safe work environment

The focus is on producing good quality milk, from healthy stock, with good milking practices and having a good team while meeting or exceeding environmental KPI’s. This is achieved through attention to detail.

There is a policy of implementing technology where it provides value and makes attention to detail easier to achieve e.g. SPACE, automatic cup removers (ACR), milk meters, protrack, accounting and payroll software.

A key aim is to achieve a consistent production (maintain 310,000 kgMS) with a focus on efficiency and good environmental practices. As the system gets more efficient, the number of cows will reduce, potentially reducing costs and environmental impact

The farm has good infrastructure which is kept well maintained. Having a tidy and attractive farm means we are able to positively promote the dairy industry through hosting people on farm.

Governance

Three meetings a year with the governance team (shareholders, the accountant and the bank), along-side monthly governance reports to the governance team, ensures good communication and an opportunity to share knowledge and experience to identify and solve issues early.

These reports include a financial update – keeping the budget “alive” and engaged with. Regularly updating the budget not only keeps everyone informed, but prevents you from being overwhelmed when the budget does get updated

This governance structure creates accountability and provides pressure to perform, keeping farm performance strong both for the current situation, but also staying ahead of the game to manage future challenges and opportunities.

The banker is viewed as an asset, along with the equity partners and the accountant. They are a valuable source of information, bring experience and make a positive contribute to the discussion.

The shareholders want to see a productive and profitable farm business that produces a return on their asset, with happy and productive people and cows. The goal is to pay down debt to ensure a strong balance sheet and be in a better position to manage risk.

Risk management is an important component of the monthly governance reports; keeping risks top of mind and planning the response. Risks are assessed for likelihood and impact and include natural disasters, interest rates, access to winter grazing and burnout. The governance team identify solutions to help manage risk

• The farm operates a production system 4-5 (33% imported feed including off farm grazing)
• Pasture & Crop Eaten was 13.4 tDM/ha in the 2022/23 season (impacted by dry summer)    
• 1.4tDM/cow of imported supplement and winter grazing
  Imported supplement ~884 kgDM/cow (2022/23), mix of grain (44%) and silage (48%) plus small amount of molasses and hay
• Cropping: 14-15 ha of Fodder Beet grown on farm: ~5 ha fed in autumn, balance grazed in winter or spring
• Young stock grazed off, ~80% of cows wintered off farm
• Nitrogen typically 100-110 kgN/ha/year with N surplus of 27-33 kgN/ha
• Milking platform 210 ha effective, Flat contour – mostly recent silt loams
• 35% effluent irrigated (69.3 ha)
• Milk 650 cows at peak, Friesian Cross (~485 kgLW in Dec)
• The herd is of high genetic merit with a BW 229/5 and PW 301/77 in May 2023. This was top 25% for BW and top 5% for PW.
• Milk Production ~470-480 kgMS/cow (97% of LW) and 1460-1480 kgMS/ha
• 54 Bail rotary, with ACR, milk meters and in-shed feeding (with a mill)
• Herd reproduction: 2022/23: 73% 6 week in-calf rate (72-77% in recent years), 9.5 weeks mating (4.5 weeks AI, then bulls , 10% CIDR’s (targeting young/high BW cows)
• Cows are body condition scored by the vet 3 times per year – targeting minimum of 4.5 at drying off

2023/24 (Impacted by dry weather in summer)
• Pasture & Crop Eaten: 12.7 tDM/ha
• Total Feed Eaten: 17.4 tDM/ha
• Purchased N Surplus (23/24) 105kgN/ha (benchmark average is ~150 kgN/ha)
• GHG Emissions (23/24) 9.7 kgCO2/kgMS and 13,728 kgCO2e/ha (benchmark is ~11 kgCO2/kgMS)

The farm was granted a 10 year consent to apply effluent in 2023, (this included the ponds being assessed by an external consultant). The farm has 1,000,000 L3 effluent storage.
Have recently been granted a consent to use water at the shed. Water is sourced from bores on the farm, which is now monitored.
Drains are fenced – no waterways or wetlands on the milking platform.
The initial Farm environmental plan was completed in 2019. It is being updated now (2023). It is expected that there will not be any actions to follow up on, but it may include some nice to have’s.

Soil fertility, fertiliser and N applied

Soil tests are used strategically to look for long term trends rather than testing every paddock on the farm
Soil test results are typically; pH 5.9 – 6.1, Olsen P 15-40
Fertiliser is applied strategically according to need
Application is either with own gear to get the best timing (monitored via GPS) or external contractors are used

Shelter and riparian planting
There are established hedges on the farm that provide shelter
Any planting is primarily for aesthetics

• Pasture
  Spring Rotation Plan (and snapshot calculator) are used to help hold the rotation from calving to balance date (balance date is typically around the 10th October). The plan is to finish the first round on 20th September.
  Rotation length is typically around 30 days; 23-25 days is as quick as it gets in the spring.
• Regrassing
  The winter crop area (14-15 ha) is re-grassed in the spring, usually by October, and is back in the rotation by December/January.
• Crop
  14-15 ha of Fodder beet is grown each year (sown ~1st November);
  • Around 1/3 used in the late autumn (Apr/May) to help transition the cows for the winter
  • 1/3 used to winter some cows at home
  • 1/3 used to bring the cows home from wintering prior to calving
  Fodder beet is used because of the high yield and good quality, but has some challenges with transitioning on and off. There’s a good transition plan developed in conjunction with the local vet which has helped to reduce metabolic issues.
• Supplements purchased
  Supplement is mostly barley with some wheat (300t or ~415 kgDM/cow) crushed through the mill and in-shed feeder with minerals and a small amount of Molasses for palatability.
  PKE is not used as part of the farm system (as an environmental choice), which makes the feed slightly more expensive.
  Around 300 tDM of Silage (either grass or cereal silage) is purchased and primarily fed through the summer.
• Supplements made on the milking platform
  Usually no supplement is made on the milking area. The plan is to have sufficient cow numbers to harvest all the pasture.
• Winter grazing
  The herd is grazed off on average for 9 weeks. Stock are able to be walked to the grazing so no freight costs are incurred.
  Cows return to the milking platform just prior to calving so are bought home in small mobs.
• Young stock
  The last of the calves leave the farm as weaners by 1st December. They return to the farm mid-July 1st as in calf heifers. They are grazed on support land owned by Camden Group. All costs are at market rates.

• The milk production target is for the cows to be producing around 100% of Liveweight.  They average 485-490 kgLW in December and have been producing ~98% of Liveweight.  The target for first calvers is 75% of the herd average.
• Reproduction is good, (6 week in-calf rates between 72-77%), mating is for 9 ½ weeks (AB for 4 ½ then the bull).  Submission rate in 2022/23 was 87% for the first 3 weeks (target is 90%).  Calving is tight; 71% calving in the first 3 weeks, 92% in the first 6 weeks and 99% by week 9.  Around 10-12% of cows are treated with CIDR’s targeting young, high BW cows.  Not in-calf rates are around 12%
• 165 calves are reared (25%) with around 150 coming into the herd as first calvers – in 2022/23 around 83% were retained to calve as 3 year olds. 
• Young stock are grazed off farm from 3-4 months old.  Enough calves are retained for a 25% replacement rate, but this may be reduced – grazing is expensive and with sexed semen there’s scope to get enough high quality replacement calves to meet the herd requirements.
• Calves are DNA tested at dis-budding.  Herd testing was 4 times, but this has been dropped to 3 times per year once milk meters were installed (to provide data for LIC).  
• Heifers are mated to yearling jersey bulls – this is more practical given it’s difficult to manage AI where they are grazing.  First calvers need to be kept in a separate mob when they calve to avoid keeping the calves as replacements
• There’s a focus on prevention and attention to detail with animal health which has kept costs for animal health and breeding typically below the DairyBase benchmark.  Teat seal is used in preference to dry cow therapy and a well structured plan for minerals and BCS is refined with regular testing. 
• Winter grazing is sourced on the open market. For the current season, the grazing is nearby and the cost is based on the amount of feed supplied, (pasture crop and . The farm team manages the stock over the winter with the cows initially wintered in age groups rather than calving date, they come back closer to calving to graze the beet paddocks, later calvers are sent back to graze off farm longer.  This season 380 cows were grazed off and 150 kept at home.

The aim is to ensure hours worked per day are not too long and not too many days are worked in a row.
Rosters are set to limit daily hours to no more than 7 hours per day (plus breaks) and no more than 3 or 4 days are worked in a row before a day off is allocated.
All hours worked are paid as wages rather than drawings
There’s a total of 4.5 FTE – part of ensuring the farm is an attractive place to work
• Duncan is full time on the farm
• Anne Marie manages the office work and provides back-up on farm
• One full time staff - Morning shift - 4.40am to 12.30 pm (80 hours/fortnight 
• One full time staff - Day shift - 9:30 to 5.30pm (80 hours/fortnight)
• One full time staff - Monday to Friday 35 hours per week varying between morning and day shift
• A Calf Rearer 2.5 months 4-6 hours per day
• Relief milker
• Lincoln student over summer (to cover annual leave)

Health & Safety
First aid refresher every 2 years as a farm team – trainer comes to the farm and does it at the workshop (with a minimum of 15 people needed, non-staff make up the difference) which allows the training to include farm specific training.
There’s an H&S Manual, which is used by the team. Any new staff receive a detailed orientation – a key message for the farm “is if you feel unsafe stop!”
Staff meetings – Target Team meeting every two weeks (includes a H&S component) – discussing anything going on the farm now and what’s coming up.

Individual staff
One-on-one review 2-3 times per year, keeps everyone informed and helps address issues early.

Overview

Feed is a relatively large portion of our farm working expenses. At this stage feed has not been contracted, but conversations with feed suppliers will occur so that the there is a balance between quantity of feed supplied and the price it needs to be so that it is profitable.

What advice would you give to farmers who are either first time sharemilking or farm owners?

Keep your budget current. This can help identify areas where you might have come in under budget and so can potentially use that money elsewhere, or where you might be going over budget and have to rein things in a bit.

It is important to communicate with your bank and keep them up to date about where your financial pinch points can be expected during the year. Having a current budget and knowing your numbers will also demonstrate that you have a good understanding of where your business is at.

Key points

•    The winter and early spring have been very good climatically.
•   Very wet weather and high rainfall for the first week in October was challenging but had no long term impact in terms of flooding, although it did delay the planting of crops.
•    Production to date is tracking behind the budget of 310,000 largely due to lower peak cow numbers - 626 compared with 636 last season.
•    Gross farm income is forecast to be about $2.00/kg MS up on last season, a result of better payout and higher stock sales.
•    Repairs and maintenance will be well up on budget with the forecast spend looking like about $0.60/kgMS, $0.27/kgMS is being spent on planned house improvements and unplanned rotary platform repairs.
•    This is the first full season with Smaxtec boluses fitted in the herd, so animal health costs of $0.47/kgMS include animal health monitoring fees of $0.18/kgMS.

Update as of 25th January 2024.

Key points

•    Rainfall and pasture growth season to date has been similar to previous years.
•    Production to the end of December is on budget and slightly up on last season.
•    Milk income is forecast to be down on budget due to lower forecast increase later in the season.
•    Planted an additional 9 ha of barley, (for summer silage harvest), as part of planning for a summer dry period.
•    Repairs and maintenance well up on budget.
•    Animal health costs are up as the decision was made to trial digital monitoring boluses in 50 cows.

Comments

Rainfall and pasture growth for the season to date is similar to previous years and the season is tracking well compared with the budget.
Production to date is 194,613 kgMS which is similar budget and slightly up on last season. This is from 636 cows milked at the peak, 14 down on budget. Numbers were down as culling started early, in part due to the decision to carry fewer cows in anticipation of an early dry summer. In hindsight this approach was perhaps a bit conservative as the dry has not come early.
Supplements fed for the season to date is 378 kg DM/peak cow milked, which is as per budgeted. The herd peaked at 2.14 kg/cow/day from pasture, grain, molasses and baleage.
12 ha of fodder beet was planted in October. The original plan had been for 14-15 ha. The crop is growing well and yields are looking very good.
The decision was also made to plant 9 ha of summer feed barley as part of a drought mitigation plan. With forecasts for an El Nino dry summer the possibility of having difficulty sourcing supplement was high so this crop, (to be made in silage), will reduce this risk. This has of course increased cropping costs compared with budget.
There was a small surplus of pasture in the spring on the milking platform, with 20 ha harvested for baleage, which is similar to last season. The original budget was for no supplement harvested on the milking area.
Nitrogen applied to date is on budget with 70 kgN/ha average over the whole area. Product used is sulphate of ammonia and Urea in October. Two applications, (spring and early summer), of 35kgN/ha have been made.
The revised budget suggests milk income will be about $20,000 lower than budget as a result of the lower advance milk price. Now that we are over half way through summer, and with milk production tracking slightly ahead at present, we might get back on track with the budget.
R & M costs are nearly double with additional spending on the sleepout at the main house, and track up grades that were not in the budget.  Weather conditions were good earlier in the season so the opportunity was taken to get the tracks in to good order again. A barn was blown over earlier in the year and although the replacement is covered by insurance there is additional site preparation of $20,000 that needs to be done before rebuilding can start.
Total farm working expenses are on track to be up about $150,000, ($0.47/kgMS), largely due to additional discretionary repairs and maintenance and under budgeting for wage increases. 

Current Situation

Current daily production is slightly up on last season and is on budget with the herd producing 1.65 kgMS/cow/day, from 631 cows, milking twice a day. Cow intakes are estimated at 17 kgDM/cow/day made up of 15 kg DM of pasture and 2.0 kgDM of grain. Cow body condition score is 4.5 which is similar to previous years. This was from independent assessment February 1st. They were assessed as being 4.8 BCS in September.
Pasture cover is 3,166 kg DM/ha and growth rates for the last week have averages 60 kgDM/ha/day. At current per cow daily intakes of pasture demand is 50 kgDM/ha/day on the effective area excluding crops. At current growth rates cover is increasing slightly still. The grazing rotation is 30 days, which is standard for this time of year.
This time last year the area was quite dry so there is more pasture ahead of the cows compared with last year.
Young stock are all off the farm.

Looking forward

There has been some rainfall in the latter half of January but it has not had much effect and as at February 7th the farm is looking a bit dry.
The plan is to continue on the current grazing rotation and just adjust the level of supplements fed to maintain pasture cover at a reasonable level and protect growth rates.
There is 406 kgDM/cow of supplement on hand available to be fed out between now and the end of the season (May 31st). In addition there is another 160 kg DM /cow of fodder beet that can be fed this autumn. This equates to about 4.5 kgDM/cow/day form the 25th January to the end of May.
The herd will move to once a day milking at the beginning of May and will be dried off in batches of 125 cows over a week towards the end of May. A small number of “at risk” cows will be dried off earlier if necessary.
Nitrogen use is likely to be slightly up on the budgeted 75-90 kgN/ha as one more application of 35 kgN/ha is planned for March/April. This will be a total of 105 kgN/ha for the season.

Calving and reproduction

•    The calving pattern for the 23-24 season was 69% after 3 weeks, 89% after 6 weeks and 99% after 9 weeks. This is similar to the previous seasons. 
•    Submission rates for the first 3 weeks were 90% which is up on last season, (87%).
•    There were 14 bulls leased for the herd and 9 bulls leased to run with the yearlings as per budget.
•    More replacement heifer calves were born than budgeted so 183 heifer calves were reared, 18 up on budget. The plan had been to sell 20 but as yet there are no buyers. This has added to the cost of grazing.

Other points of interest

•    Somatic cell counts are currently sitting at 80,000-90,000 which is normal for this time of year.  The farm target is under 100,000 when not in the shoulders of the production curve.
•    Fixed interest rates on significant loans come to an end in April which means interest rates will likely double. While this has been budgeted for, it will make a big dent in the cash flow.   
•    Negotiations with the bank for rebated interest rates will be centred on the fact the farm has undertaken borrowings in the last 10 years to complete all environmental compliance work and should get some recognition for this as per the banks “green loan” lending policies.

Click here to view PDF of budget