Budgeting, Anne-Marie and Duncan Wells (South Otago)
12 min read
On the Taieri Plains near Outram, Huntly Road Dairies Ltd, is an equity partnership operated by Duncan & Anne-Marie Wells. It is a high-performing farm, with excellent governance and supported by attention to detail, both on the farm and in the office. Strong performance on the farm, along with a disciplined financial approach helps create room to navigate unanticipated challenges (such as a drop in milk price). The goal is to be profitable while being mindful of the environment and providing a safe, supportive, and enjoyable workplace.
Huntly Road Dairies Ltd, an equity Partnership operated by Duncan & Anne-Marie Wells is a high-performing farm, with strong governance and supported by attention to detail, both on the farm and in the office.
Strong performance on the farm (happy and productive cows) along with a disciplined financial approach helps create room to navigate unanticipated challenges (such as a drop in milk price). The goal is to be profitable while being mindful of the environment and providing a safe, supportive, and enjoyable workplace.
Monthly governance reporting to the governance team (equity partners, the accountant and the bank) ensures good communication and an opportunity to share knowledge and experience to identify and solve issues early.
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.
Business type:
Owner-operator in equity partnership
Location:
Taieri Plains, near Outram
Farm size:
210 ha effective milking platform, no support land
Soil type:
84% Gley poorly drained, 16% Recent, well-drained
Peak cows:
650 FX, average 485 kgLW (Dec)
PSC:
01/08/2023
Stocking rate:
3.1 cows/ha
Farm system:
4-5 (33% feed imported)
Wintering system:
60-80% of the herd wintered off farm for 9-10 weeks
Production 2023/24:
310,000kg MS/year budgeted, 1476 kg MS/ha, 477 kg MS/cow
Production (last 3 years):
310,975 kg MS/year
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.
Financial KPI 2023-2024 budget | |||
Net dairy cash income ($/kgMS) | Total farm working expenses ($/kgMS) | Total operating expenses ($/kgMS) | Dairy operating profit ($/ha) |
$8.47 | $5.59 | $5.96 | $3,711 |
Physical KPI 2022-23 |
|||
Pasture and crop harvested (t DM/ha) | Purchased N surplus (kg N/ha/yr) | GHG (t CO2 equiv/ha/yr) | Six week in-calf rate (%) |
13.4 | 33 | 9.7 | 74 |
Find out more about these KPI's and how to calculate them for your own farm here.
Strategy and financial
M - Milk Production
I - Integrity
L - Livestock
K - Keep it Clean
Simple Farm Goals
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
Farm policy and infrastructure
Environment
2022/23 (Impacted by dry weather in summer)
• Pasture & Crop Eaten: 13.4 tDM/ha
• Total Feed Eaten: 20.1 tDM/ha
• Purchased N Surplus (21/22) 33kgN/ha (benchmark average is ~150 kgN/ha)
• GHG Emissions (21/22) 9.7 kgCO2/kgMS or 12,878 kgCO2e/ha (benchmark is ~11 kgCO2/kgMS)
The farm has just been granted a 10 year consent to apply effluent (this included the ponds being assessed by an external consultant). The farm has 1,000,000 L3 effluent storage.
Currently in the process of applying for a consent to use water at the shed. Water is sourced from bores on the farm, these are not currently monitored, but this is being implemented now, (2023).
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
Feed
Herd
People, health and safety
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
• Assistant Manager (95 hours/fortnight)
• Two people job-share
-5am to lunchtime (80 hours/fortnight)
-9:30 to 5pm (80 hours/fortnight)
These staff share a 7 on 1 off, 4 on-2 off (11 on and 3 off over two weeks allowing 1 weekend off every 2 weeks)
• Introduction to farming role:
- 9am to 5pm Monday – Friday (35 hours/week)
• 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.
Budget last updated August 2023
INCOME | $TOTAL | $/KgMS | $/COW | $/HA |
Net Milk Sales
Forecast milk production for the season is 310,000 kgMS. Milk income is based on the Fonterra advance forecast as at August 20th 2023. The advance rate until April 2024, (received in May) is $5.50. Deferred milk income is based on 307,296 kgMS @ $2.14/kgMS. A Fonterra dividend of $0.29/share on 310,000 shares is included. Milk revenue is net of DairyNZ levy of 3.6c/kgMS. This milk income is the farmers best estimate of their likely net milk sales. It may or may not be out of date based on new information from dairy companies. It does not necessarily reflect DairyNZs milk price forecast.
|
2,512,000 | 8.10 | 3,865 | 11,962 |
Net Dairy Livestock Sales
Stock sales are based on about 150-160 cull or surplus cows and empty heifers @$500/hd, and 460-490 bobby, dairy beef or surplus replacement heifer calves. This includes about 100 Hereford cross calves sold at 4 days old. This year about 30 surplus replacement heifer calves have been reared and will be sold in November after weaning.
|
96,900 | 0.31 | 149 | 461 |
Other Dairy Cash Income
Rent received for surplus farm housing, plus trading rebates.
|
17,200 | 0.06 | 26 | 82 |
NET DAIRY CASH INCOME | 2,626,100 | 8.47 | 4,040 | 12,505 |
EXPENSES | $TOTAL | $/KgMS | $/COW | $/HA |
Wages(incl. ACC)
All hours worked on the farm by the owners is paid as wages rather than drawings. There is a total of 4.5 full time equivalent (FTE) labour units. Duncan is full time on the farm, Anne-Marie manages the office work and provides back-up for on farm work. An assistant farm manager is employed (95 hours/fortnight), two staff members job share for a combined 80 hours per week and work 11 days on and 3 days off over two weeks. An additional staff member is employed in an introduction to farming role for 35 hours/week (Monday to Friday, 9am-5 pm). A calf rearer is also employed for about 2.5 months, 4-6 hours per day.
|
377,600 | 1.22 | 581 | 1,798 |
Animal health
There’s a focus on prevention and attention to detail with animal health which has keep costs for animal health and breeding typically below the DairyBase benchmark, ($0.28/kgMS average for last 2 years). Teat seal is used in preference to dry cow therapy and a well-structured plan for minerals and BCS targets is refined with regular testing. The cost for BCS to be assessed is included. Includes $17,500 for minerals and $13,000 for teat spray.
|
66,500 | 0.21 | 102 | 317 |
Breeding and herd improvement
This covers anoestrous treatment, breeding, bull leases, genetic testing of replacement calves, herdtesting, MINDA and Protrack licence costs. Mating is for 9.5 weeks, with 4.5 weeks of AB and 5 weeks with 14 Hereford bulls. The heifers are run with 6 Jersey bulls. About 10-12% of the herd are treated for anoestrous each, with the focus on young, high BW cows. Replacement calves are DNA tested at dis-budding time. Herd testing is 3 times a year, (two milkings per test).
|
68,400 | 0.22 | 105 | 326 |
Farm dairy
Covers shed inspections and plant checks, detergents, rubberware and consumables like filter socks and milking gloves.
|
12,700 | 0.04 | 20 | 60 |
Electricity(farm dairy, water supply)
The shed is a 54 bail rotary with automatic cup removers. Milking takes are about 2.5 hours in the morning and 2 hours at night. The herd is milked twice a day for most of the year. The herd is usually dried off in late May.
|
23,400 | 0.08 | 36 | 111 |
Supplements made(incl. Contractors)
Very little supplement, if any is made on farm.
|
0 | 0 | 0 | 0 |
Supplements purchased
A total of 884 kg DM/cow is imported, made up of; 270 t DM whole grain (mainly barley with some wheat) which equates to 415 kgDM/cow, 300 t DM silage and baleage which equates to 450kgDM/cow and about 30 t DM of molasses and hay, which is about 45 kg DM/cow. The majority of silage and baleage is bought as standing feed and then transferred to the milking area. Costs include purchasing the feed plus the contracting costs associated with harvesting and storage. The grain has not been contracted yet as it is hoped the prices will drop during the season from a high of $580/t last season. The budget has been based on about $580-$600/t landed.
|
453,400 | 1.46 | 698 | 2,159 |
Calf rearing
165 replacement calves will be reared this year. Costs cover $6,000 for sawdust, $2,000 for vet costs, and $1,000 for equipment. Grain for calves is included in purchased feed - they get some of the crushed grain that is purchased for the cows.
|
9,000 | 0.03 | 14 | 43 |
Young and drystock grazing
This covers;165 weaners from early December to May 1st (about 24 weeks) @ $9.50/hd/week, 165 Yearlings from May 1st to April 30th @ $$14.50 /hd/week, and 150-160 in-calf heifers for 4 weeks @ $36/hd/week, (May 1st to May 31st).
|
173,600 | 0.56 | 267 | 827 |
Winter grazing
About 380 cows were wintered off farm this season and 150 kept at home. The cows go to grazing in batches and the return home is staggered based on calving date. Winter grazing this year is nearby, so there is no freight, and the cost is based on feed supplied. All stock work and feed allocation is done by the farm team, not the grazier. The budget works out at about $336/cow which equates to an average of about 10 weeks @ $34/hd/week.
|
127,800 | 0.41 | 197 | 609 |
Fertiliser(incl. N)
Fertiliser applied is based on soil tests and 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. Nitrogen applied is about 75 -90 kg/N/ha/year. Sulphate of ammonia or similar is used in late winter, spring and early summer and SustaiN Green is used in March when the weather is hotter. Lime is applied as required. Crop fertiliser is included in total fertiliser costs.
|
129,800 | 0.42 | 200 | 618 |
Regrassing & cropping
This covers the cost of regrassing 14-15 ha of pasture each spring (cultivation, seed and planting), and the ploughing and seed costs for 14-15 ha of Fodder beet. Planting and some cultivation is done by the farm team.
|
31,500 | 0.10 | 48 | 150 |
Weed and pest
This includes all farm maintenance weed and pest control as well as weed and pest control in the new grass and fodder beet crop.
|
15,000 | 0.05 | 23 | 71 |
Vehicles & fuel
Includes about $14,000 for fuel and oil. The farm has a vehicle replacement policy that ensures vehicles are replaced before they are too old and costly to maintain. Within the farm team there is the capability to carry out a lot of the vehicle maintenance which keeps costs down.
|
28,700 | 0.09 | 44 | 137 |
R&M(land, buildings, plant, machinery)
Repairs, maintenance and capital improvement on farm has always been carried out to a high level so the budget is very much status quo. Includes about $7,000 for loafing pad maintenance, $7,000 for employee dwelling repairs and $6,000 for effluent disposal. Track maintenance is is carried out every year to ensure they remain in good order.
|
89,600 | 0.29 | 138 | 427 |
Freight and general farm expenses
This is made up of $7,900 bio-security levy and $2500 for sundry general farm expenses.
|
10,400 | 0.03 | 16 | 50 |
Administration
This covers accountancy including software subscription, subscription for SPACE, buyers group, office internet and general office costs. All payroll and GST is done in house.
|
30,800 | 0.10 | 47 | 147 |
Insurance
This includes directors liability and key Person cover so is higher than average.
|
36,900 | 0.12 | 57 | 176 |
Rates
Regional rates are high as the farm is part of the Taieri flood plain.
|
47,600 | 0.15 | 72 | 222 |
TOTAL FARM WORKING EXPENSES | 1,731,800 | 5.59 | 2,664 | 8,247 |
CASH OPERATING SURPLUS | 894,300 | 2.88 | 1,376 | 4,259 |
Non-cash adjustments have been included below the cash analysis to enable fairer comparisons to be made between farms. These adjustments are not part of a cash budget but are important to fully understand the efficiency of the farm business.
$TOTAL | $/KgMS | $/COW | $/HA | |
Value of change in Dairy livestock
Expect to have 8 less R 2 bulls on hand at the end of the season. All other stock numbers will be similar. This is based on 2023 IRD NAMV.
|
0 | 0 | 0 | 0 |
Labour adjustment
This is for 0.6 FTE of unpaid shareholder input. Equates to wages of management of $115,000/FTE.
|
0 | 0 | 0 | 0 |
Feed inventory adjustment
Expect to have 100 t DM of maize silage on hand at the end of the season. Less maize was carried in to the the 2023-24 season as yields were affected by the floods. This is 50% of 100 t DM valued $400/t DM.
|
0 | 0 | 0 | 0 |
Depreciation
Based on 2021-22 financial statements plsu allowances for 2 more years of additional depreciation and asset purchases and sales.
|
0 | 0 | 0 | 0 |
DAIRY GROSS FARM REVENUE | 2,626,100 | 8.47 | 4,040 | 12,505 |
DAIRY OPERATING EXPENSES | 1,846,800 | 5.96 | 2,841 | 8,794 |
DAIRY OPERATING PROFIT | 779,300 | 2.51 | 1,199 | 3,711 |
Want to see how the top operators are spending their money? Are there areas for improvement in your own business where savings can be made? We’ve collected in-depth current season budgets from a number of top performing farms with a focus on lower ‘per unit’ cost of production to help you identify opportunities.