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Budgeting, Medium Input System (South Waikato)

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Payout drop advice Farm facts Numbers at a glance Management decisions 2023-24 forecast budget Additional resources

This small north-east facing farm near Arapuni, has a simple, sustainable system for continued profitability. The farm is 68 ha in size, milking 215 FJX cows operates a medium input system, with a production target of 84,500kg MS/year. Infrastructure and farm systems are in place to enable a contract milker to manage the farm, with the owners living off farm. Key to success is controlling farm expenses and consistent budget monitoring.

This small, north east facing, system 3 farm, near Arapuni, is typical for the area with a rolling contour.

A simple sustainable farm system is key to maintaining this profitable farm business that allows the owners to stay involved in farming but also enjoy quality time off farm.

This farm has infrastructure and farm systems that enable one person to manage the farm by themselves with just a little help with calf rearing.  As a small farm, it is important that farm working expenses are kept well under control so there is no wasteful spending. Regular and frequent budget monitoring is key to this.

Budget revision following milk payout drop

Overview

A focus on debt repayment in the past nine years has given our business the resilience needed now to cope with this downturn in payout. The latest drop translates into $105,000 being lost from expected income.
We have revised our budgets, and cashflow forecast, using a $5.20/kg MS advance, ($6.75 /kg MS final payout). This has shown that:

  • We needed to revise our provisional tax payment schedule, as our first installment, (already paid), should cover the entire seasons liability, which significantly helps the bottom line
  • Our cost structure is relatively streamlined, R & M will be cut to absolute essentials, but at this stage there is very little else we will reduce
  • We have some reserves, which could be used if need be.

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

Don't bury your head in the sand! Revise your budgets as soon as there is any change in payout. Just understanding the impact on your bottom line will help you feel in control. You will be able to make better decisions once that is done.

Maintain good communication with your banker and accountant.

What words of positivity would you give to farmers planning for the coming months ahead?

Costs at this time of year are largely essential, so don't make any rushed decisions on cutting spending. Focus spending on areas that make money.

Concentrate on getting the basics right; Follow the spring rotation planner and keep doing your feed budgets.

Do you have any tips and tricks for looking after your people on farm?

Good communication is key so staff understand what impact the lower payout is having on the farm plan and what the new plan looks like.

Farm facts

Business type: 

Owner-operator

Location: 

Arapuni, South Waikato

Farm size: 

68 ha effective milking platform, no support block

Peak cows: 

215 FJX

PSC: 

26/7/2023 MA cows (21/7/2023 Heifers)

Stocking rate: 

3.16 cows/ha

Farm system: 

3 (11-20% feed imported)

Production: 

84,500kg MS/year budgeted, 1,243 kg MS/ha, 393 kg MS/cow

Production (last 3 years):

82,870kg MS average

Numbers at a glance

Financial KPI 2023-24 budget
Net dairy cash
income ($/kgMS)
Total farm working 
expenses ($/kgMS)
Total operating
expenses ($/kgMS)
Dairy operating profit ($/ha)
$8.90 $5.99 $6.65 $2,647
Physical KPI 2021-22
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 (%)
14.5 97 13.5 69

Find out more about these KPI's and how to calculate them for your own farm here.

Management decisions

Strategy and financial

  • Mission
    To create long term stability and financial security through dairy farming. Aim to maximise profit through simple, sustainable systems.
    Strive to create win/win situations for all involved in the farm business – for ourselves and farm staff.
  • Vision
    Have a well-managed farm that can be managed a contract milker with support from the business owners at key times.
  • Values
    Family is number one priority.
    Profit is king.
    Sustainability – systems must be environmentally and personally sustainable.
    A very high standard of animal welfare must be maintained.
  • Financial management
    Keep a detailed cashflow, updated weekly, to ensure well informed decisions can be made quickly.
    Continue to prioritise debt repayment which helps mitigate business risk. The level of debt at the end of the 2023-24 season should be about half of what it was in 2018.
    Keep up to date with current research and technology, evaluate and implement appropriate systems early.

Farm policy and infrastructure

  • The farm is managed based on a production system 3 with imported feed, (PKE), at about 12-14% of total feed eaten.
  • All young stock are off farm from weaning.
  • All cows are wintered on farm.
  • The farm is of rolling contour with 60% of the farm about 40 m elevation difference from the farm dairy. It is 850 m to the furthest paddock. There a 34, 2 ha paddocks, each with 2 water troughs.
  • Milking is twice a day from calving till January 25th, then once a day until drying off about May 20th.
  • The farm dairy is 20 a-side herringbone, (built 2009), so about 11 rows are milked at peak.
  • The dairy yards can hold up to 280 cows so there is plenty of space for 220 cows over winter if cows need to be stood off.

Environment

  • Fertiliser
    pH is 6.2, Olsen P is 50+ (volcanic soils).
    Fertiliser applied includes 130kg N/ha/year over 6 applications of 23kgN/ha each, from May to January. Depending on the time of year it is in the form of Ammo 30, (urea and Sulphate ammonia mix), in the early spring, SustaiNK mix, (23 kg N/ha and 25 kg K/ha), or urea.  The autumn fertiliser applied is a mix of N, P and Mg.
  • Effluent management and use
    The farm has stirred storage tanks that can hold thirty days of effluent.
    Effluent can be sprayed on to 17 ha, (about 25% of the farm). Contour limits how much of the farm can be used for effluent.
  • Riparian planting
    6 ha of the farm has been fenced off and have been planted.
    Some steeper areas of the farm have been identified to be retired in future.
  • Waterways
    The majority of waterways are fenced with just a few minor drains left to do.

Feed

  • Pasture management
    The key to a simple profitable system is to maximise pasture utilisation. Pasture cover and growth rates are monitored throughout the year, with the spring rotation planner used through calving and into the early spring.
  • Supplements purchased
    About 140 t PKE (126 T DM), is fed all season from 2-4 kg DM/cow/day depending on time of the year, grazing residuals and weather.
  • Cropping
    Usually, 3-4 ha of maize, (130-140 days maturity), is grown each year on the effluent block. This helps shift surplus feed from the spring to the autumn and removes excess fertility from that area.
    Traditional cultivation is used.
    The yields are about 60 t DM, which is fed as maize silage mainly in the autumn. About 20-30t DM is carried through for use in the spring or late summer if needed.
    For the 2023-24 season it is unlikely any maize will be grown as three times as much supplement is on hand at the start of the season than is usually taken into the winter. The wet summer and autumn of 2023 meant none of the 2023 maize crop was fed out and a lot more baleage is also still on hand.
  • Supplements made
    Approximately 40 t DM of baleage, (220 bales), is made, using contractors for all the work.

Herd

  • Breeding and herd testing policy
    AB is for 3 1/2 weeks using A2 semen. The majority of the herd is mated to dairy breeds although a few lower BW cows or likely culls are mated to beef semen.
    2 bulls are run with the herd for another 6 weeks to give a 9 1/2 week mating period. 2 bulls are leased to be used over the R 2 heifers.
    There are no intervention treatments used over mating. 
    Herdtesting is 4 times a year - usually twice with 2 milkings and then 2 tests over 1 milking, (after January when the herd is on once a day).
    All replacement calves are DNA tested.
  • Animal health
    Mineral supplementation is via drenching from calving till late November (Mg and a probiotic), Se via drench November and January, plus a Se injection in the winter.
    Heifers are given copper, (Cu), when they return to the farm. No other Cu supplementation is given as the milkers get PKE all year and this is high in CU.
    Drenching with zinc for facial eczema starts in late January.
    The herd SCC averages 129,000 for the 2021-22 season. High SCC cows are treated with longer acting dry cow at drying off. The rest of the herd is also blanket treated with short acting dry cow antibiotic.
  • Young stock policy
    Replacement rate is about 20% with 43 calves reared in the 2023 spring.
    Calves are reared on milk and meal and go to external grazing late November. About 8 beef animals are reared each year and go to the owners off farm property in the Bay of Plenty
    R 2 heifers return to the milking platform May 1st.

People, health and safety

  • The farm is set up to be able to be managed by one full time person.
  • The 2023-24 season will be the first season with a contract milker.
  • The farm owner will provide on farm support at key times.
  • The farm is compliant for all health and safety requirements.

2023-24 Forecast budget

Budget last updated May 2023

INCOME $TOTAL $/KgMS $/COW $/HA
Net Milk Sales
This budget is for a June 30th balance date. Milk income is based on deferred income for 79,524 kg MS @ $1.34/kg MS, (received July to October 2023), and advanced income for 84,500 kg MS @ $6.65/kg MS, (received July 2023 to June 2024). The Fonterra dividend is estimated at $0.45/share of 90,800 shares.. *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.
706,400 8.36 3,286 10,388
Net Dairy Livestock Sales
Includes the sale of 48 MA and R 2 heifer culls @ $650/head, 140, four day old calves @ $35/head and 5 R 2 steers @ $1400. Includes the purchase of one 2 year old Angus bull and the sale of one 3 year old Angus bull.
45,400 0.54 211 668
NET DAIRY CASH INCOME 751,800 8.90 3,497 11,056

 

EXPENSES $TOTAL $/KgMS $/COW $/HA
Wages (incl. ACC)
This is payment to the contract milker and covers remuneration for 1.0 FTE plus some relief milking and allowances for calves reared. The contract milkers is responsible for the costs of dairy shed consumables and running their farm bike. Included under wages is remuneration to the farm owner for 0.30 FTE work provided to the business. This covers on farm work, governance, administration and strategic planning.
184,800 2.19 860 2,718
Animal health
This covers mineral supplementation via drenching from calving till late November, (Mg and a probiotic), Se via drench November and January, plus a Se injection in the winter. Heifers are given Cu when they return to the farm. No other Cu supplementation is given as the milkers get PKE all year and this is high in Cu. Drenching with zinc for facial eczema starts in late January. The herd SCC for 2022-23 was 121,000. High SCC cows are treated with longer acting dry cow at drying off. The rest of the herd is also blanket treated with dry cow antibiotic.
24,000 0.28 112 353
Breeding and herd improvement
AB is for 3 1/2 weeks using A2 semen. The majority of the herd is mated to dairy breeds although a few lower BW cows or likely culls are mated to beef semen. 2 bulls are run with the herd for another 6 weeks to give a 9 1/2 week mating period. This cost includes the lease of 3 bulls for the heifers. Herdtesting is 4 times a year - usually twice with 2 milkings and then 2 tests over 1 milking, (after January when the herd is on once a day). Includes the lease of 2 bulls to be used over the R 2 heifers. Includes DNA testing of replacement heifers.
15,600 0.18 73 229
Farm dairy
This covers milking machine testing, rubberware and other incidentals that are the owners responsibility.
3,000 0.04 14 44
Electricity (farm dairy, water supply)
This is higher than average as the effluent system is driven by electric motors - for both the stirrers and pumping, (much of which is up hill).
11,100 0.13 52 163
Supplements made (incl. Contractors)
Approximately 40 t DM of baleage, (220 bales, 185 kg DM/bale), is made on farm using contractors for all the work. The expected cost is about $240/t DM or $44/bale.
9,700 0.11 45 143
Supplements purchased
The budget is for 140 t PKE, (wet), @ $380/t landed. This is less than previous years as there is more baleage and maize silage on hand than usual at the start of the season. This is fed in the paddock in trailers everyday to the milkers at rates of 2 kg/cow/day up to 4 kg/cow/day.
53,200 0.63 247 782
Calf rearing
43 replacement heifers and 8 beef steers will be reared for the 2023-24 season. This cost is for about 3.0t meal at $1,150/t. The calves are reared on colostrum, milk and meal and are weaned at 90-100 kg liveweight. Bedding and equipment costs are included.
4,000 0.05 19 59
Young and drystock grazing
43 weaners from late November till May 1st at $9.00/head/week and then May 1st to May 31st at $11.50 plus 43 R 2 heifers from June 1st to May 1st at $11.50/head/week.There will aslo be 8 carry over cows at grazing for 52 weeks at $12/head/week. Includes freight and the cost of grazing for 2 bulls during the mating season. Does not include the costs of drenching, that is in with animal health.
41,000 0.49 191 603
Fertiliser (incl. N)
This is net of fertiliser rebates of about $2,500. Fertiliser applied includes 130kg N/ha/year over 6 applications of 23kgN/ha each, from May to January. Depending on the time of year it is in the form of Ammo 30, (urea and Sulphate ammonia mix) in the early spring, SustaiNK mix, (23 kg N/ha and 25 kg K/ha), or urea. The autumn fertiliser applied is a mix of N, P, sulphur and Mg.
68,800 0.81 320 1,012
Regrassing & cropping
The budget allows for about 7.5 ha of direct drilling into pasture for pasture renewal. At this stage the plan is to not plant any maize as there is 3 times as much maize silage on hand at the start of the season than usual, (75 t DM compared with about 20 t DM). However, the budget does include about $7,000 for planting and harvesting about 1.6 ha of maize which is about half of what is usually grown. Whether this happens will depend on the season, pasture cover in the late spring and the milk price.
8,750 0.10 41 129
Weed and pest
Weeds and pests are not a problem. California thistles are the main problem. There is still plenty of chemical on hand from the 2022-23 season so costs should not be too high this year.
1,000 0.01 5 15
Vehicles & fuel
Fuel is quite high as the tractor is used every day to feed out, and the owner has to travels some distance when working on farm.
13,000 0.15 60 191
R&M (land, buildings, plant, machinery)
Infrastructure and buildings are in good order so no large R and M projects planned. The farm has its own rhyotlite pit so tracks and races are maintained quite cheaply.
34,500 0.41 160 507
Freight and general farm expenses
Includes bio security levy of $2000. Covers protective clothing and general freight.
3,000 0.04 14 44
Administration
Do own GST, have own payroll system. Covers accountant, computer/communication and general administration costs.
10,000 0.12 47 147
Insurance 7,000 0.08 33 103
ACC 2,000 0.02 9 29
Rates
As per latest rates demands, includes district and regional rates.
11,780 0.14 55 173
TOTAL FARM WORKING EXPENSES 506,230 5.99 2,355 7,445
CASH OPERATING SURPLUS 245,570 2.91 1,142 3,611

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 finish the season with 12 fewer R 2 heifers, 4 more MA cows and 1 less R steers. This value of change in livestock numbers is at IRD NAMV for 2023.
-9,700 -0.11 -45 -143
Labour adjustment
All owner input is included under wages paid and is at market rates.
0 0.00 0 0
Feed inventory adjustment
Expect to have about 62-63 t DM less on hand at the end of the season, as opening supplements on hand are significantly higher than usual as very little maize and silage was fed autumn 2023.
-24,300 -0.29 -113 -357
Owned support block adjustment
Allowance for about 2.7 ha of off farm land that is used for 10-11 beefies which are included in calf rearing and stock sales.
1,600 0.02 7 24
Depreciation
Based on previous years financials plus allowing for additional purchases/sales and another years depreciation.
30,000 0.36 140 441
DAIRY GROSS FARM REVENUE 742,100 8.78 3,452 10,913
DAIRY OPERATING EXPENSES 562,130 6.65 2,615 8,267
DAIRY OPERATING PROFIT 179,970 2.13 837 2,647

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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.

Last updated: Aug 2023
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