Budgeting, Pete Morgan and Ann Bouma (South West Waikato)
26 min read
This 230 ha, owner operated farm, situated in Pokuru, Waipa, is fully self-contained with 510 cows peak milked and all young stock kept on farm. A more conservative approach with the utilisation of resources will reduce the financial and environmental risks and provide a more resilient business and better environmental outcomes. Being early adopters of technology has enabled efficient use of all resources and is key to ensuring environmental targets are measured and met. All farm systems decisions are research and evidence-based.
Farming using the Halter technology continues to add interest and enjoyment to farming for the owners and the staff on this South West Waikato farm.
Pete Morgan and Ann Bouma have spent considerable time researching and modelling the move to being a fully self-contained system with yearlings and weaners at home. This is being implemented for the 2023-24 season.
This change has in part been driven by a changing attitude to risk over the past decade and the development of a more conservative approach to the utilisation of resources – people, time, land, machinery and finances.
A more conservative approach reduces financial risk from exposure to inflation, and is an insurance against variability of supply. It also improves the ability to manage environmental extremes and limit the adverse effects on pasture and livestock.
The move to being fully self-contained will decrease labour requirements and greenhouse gas emissions for the business as there will be fewer cows and fewer young stock required.
230ha effective milking platform, no support block
510 FJX (520 wintered), 100 yearlings wintered
18/7/2022 MA cows (15/7/2022 Heifers)
2.6 cows/ha including all young stock
2 (1-10% feed imported)
194,100kg MS/year budgeted, 844kg MS/ha 381kg MS/cow
Production (last 3 years):
355 kg MS/cow and 937 kg MS/ha average
How has the season been so far?
October 24th, 2023
What are cash flow forecasts looking like? How will a drought impact this?
Has the NIWA El Nino forecast changed how you are approaching this summer?
NIWA’s El Nino forecast has not changed our summer management plans as dry summer conditions are always factored into the farm plan and budget.
What strategies do you have this season for when a drought comes early, late, or is prolonged?
|Financial KPI 2023-24 budget|
|Net dairy cash
|Total farm working
|Dairy operating profit ($/ha)|
|Physical KPI 2022-23 est|
|Pasture and crop
harvested (t DM/ha)
surplus (kg N/ha/yr)
|GHG (t CO2
in-calf rate (%)
Strategy and financial
Farm policy and infrastructure
People, health and safety
|Net Milk Sales
Milk income is based on 194,100 kgMS at and advance rate of $6.05/kgMS, (including a premium for supplying all A2 milk), and 220,000 kgMS at a deferred rate of $1.40/kgMS, (working on a final milk price for 2022-23 of $8.20/kgMS). The Fonterra dividend is estimated at $0.20/share on 237000 shares. The Fonterra capital dividend estiamted at $0.50/share is excluded from this budget. This is net of The DairyNZ levy of $0.036/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.
|Net Dairy Livestock Sales
Stock sales are made up of 90 MA cows/R2 heifers @ $660/head, 20 heifer calves @ $60/head, 360 bobby calves @$45/head.
|Other Dairy Cash Income
Employee rent received for 3 houses.
|NET DAIRY CASH INCOME||1,630,700||8.40||3,197||7,090|
|Wages (incl. ACC)
Covers 1 farm manager, 1 assistant manager, 1 farm assistant and 0.6 FTE for casual for calf rearing, and throughout the year, as required. Halter technology has changed work routines and resulted in much improved work efficiencies. At the peak of calving, the staff hours worked is now under 45 hours per week.
Focus is on prevention with minimal veterinary intervention required. Includes blood tests and copper supplementation. SCC for 22-23 is 129,000. The policy is to teat seal the whole herd, and use a selective programme for dry cow therapy. High SCC cows get long acting antibiotic, mid-range SCC cows get short acting antibiotic and low SCC cows are just teat sealed.
|Breeding and herd improvement
Includes anoestrus and synchronisation treatment for non-cycling cows and 3 weeks AB plus 2 days to cover returns from cows treated for anoestrus. The top 20% of the herd on genetic merit are mated with sexed semen, the lowest 20% are mated to AB short gestation, (SG), Hereford semen and the rest of the herd is mated with premier sires. AB will continue for a further 5-6 weeks using SG Hereford semen. The last 2 weeks of mating is with AB using short gestation bull semen. Total mating length is 11 weeks, but with the use of SG semen the actual calving period is about 9 1/2weeks. The aim is to be finished calving by September 20th. Herd tests are 4 times per year, (drought permitting), with once a day testing. Cost also includes herd recording and identification, (including freeze branding of heifers coming into the herd). The budget at this stage includes mating the heifers to AB. Halter technology will provide all information for heat detection this season so no tail painting will be required.
Rubberware is changed once a year, standard detergents used. Does cover the use of 2 sheds during the year. Twice a day milking till mid-December and then once a day for the rest of the season. While the plan is to only use one shed at a time apart from during calving both sheds will be used during the year depending on proximity to where the herd is grazing. Therefore both sheds need to be fully commissioned and operational.
|Electricity (farm dairy, water supply)
Use hot water washes daily. Both sheds have a heat recovery unit fitted to the chiller so hot water is cheaper.
|Supplements made (incl. Contractors)
This includes $52,800 for stack silage made on farm. It is estimated that 60 ha will be made, (2 t DM/ha @ $440/t DM). If there is a surplus of pasture in summer this will be made as small bales of hay to use for calves and springers. All harvesting is done by external contractors. Supplements made costs also includes $25,000 for 7.4 ha of maize silage grown on farm, ($3,300-$3,400/ha), using strip tillage and direct drilling. Yields of 18 t DM/ha are expected.
100 t PKE, (wet weight), @ $450/t landed, already contracted. 10 t DM hay @ $760/t landed.
100 replacement heifer calves reared plus 5 beef. Calves are reared on colostrum and whole milk along with meal. Budget includes 7.0 t calf meal @ $1400/ t plus $3,000 bedding and dehorning and equipment. 380 bobbies will also consume colostrum for 6 days.
|Young and drystock grazing
All yearlings and weaners are grazed on farm.
All cows and in-calf heifers are grazed on farm.
|Fertiliser (incl. N)
Have done individual paddock testing in the past so this information is used to be more strategic with fertiliser applications. Information from Halter technology has been used to modify grazing patterns and a redistribution of fertility is already evident after 30 months. This has resulted in lower requirements for synthetic fertilisers and more targeted applications. Fertiliser is largely applied with own gear, which allows for more targeted applications. The budget allows for 20 t DAP @ $1,600/t, 22 t sustaiN @ $1,150/ t and 20 t muriate of potash @ $1,550/t plus 40 t lime, (for 30 ha of crop paddocks), @ $40/t plus $6,000 cartage. This will deliver 60 kg N, 174 P, and 44 Kg K. DAP is used in the spring and urea the rest of the year. Effluent is applied to 75 ha - this area gets less fertiliser. Crop fertiliser allocation and cartage and spreading costs are included.
|Regrassing & cropping
The budget is for planting 20 ha of chicory and 9 ha of turnips plus the regrassing of these areas in the autumn and the 7.4 ha maize area. There is some allowance for patching and undersowing of other pasture as needed. The areas to be planted are fluid and will depend on weather, soil conditions and pasture growth rates at the time of planting.
|Weed and pest
Californian thistles are still a problem in some paddocks. Treatment includes topping so that regrowth is all at the same flower bud stage before spraying with an appropriate weed spray. Other weeds that are an issue are white daisy and yellow bristle grass. Includes about $6,000 for planting preparation and maintenance of existing riparian plantings.
|Vehicles & fuel
Includes $18,000 for fuel, (with discounts from FarmSource), and $22,000 for service and repairs for tractors and other farm vehicles. Have very few vehicles - tend to use contractors for bigger jobs.
|R&M (land, buildings, plant, machinery)
Have a policy of doing big maintenance jobs in good payout years so here is no major R and M planned for this year. Includes $16,000 for dwellings and other buildings, $1,000 for fencing, $3,000 for water supply, $15,000 plant and machinery, $15,000 for tracks and yards.
|Freight and general farm expenses
Includes $5,000 for dog expenses, protective clothing and sundry, plus $4700 for bio security levy, ($0.024/kgMS).
Do own budgets, GST and PAYE. Covers for accountancy, communication, computer, subscriptions and mail, legal and consent costs and fees and subscriptions. Includes monitoring subscription for milk temperature, fuel levels and water flow.
Reviewed every couple of years to ensure it is still relevant.
Owner ACC only. Employer ACC is included in wages.
Includes Council rates and regional environmental rates. Farm has multiple titles so rates are a bit higher than similar sized properties.
This covers the 12 month lease for Halter hardware, (neck halters), and software support for the Halter technology; $16/cow/month on an average number of 490 cows and 100 yearlings for the year, less a discount for one payment upfront for the year. This is the first year for the heifers so the final cost may differ from budget.
|TOTAL FARM WORKING EXPENSES||990,100||5.10||1,941||4,305|
|CASH OPERATING SURPLUS||640,600||3.30||1,256||2,785|
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.
|Value of change in dairy livestock
Expect to have similar number of animals on farm at the end of the season, but there will be more MA cows and fewer in calf heifers. Values used are 2022 IRD NAMV.
This covers 0.4 FTE of unpaid management input from the owners. The owners have stepped back more from hands on farming and are spending more time in a management role and pursuing off farm interests. This also allows more time to focus on learning about, and integrating the use of Halter into the farm business so maximum benefit can be gained from using this technology.
|Feed inventory adjustment
With the good 2023 autumn, more supplement will be carried into the winter than usual so it is expected there will be 40.8 t DM less on hand at the end of the season than at the start of the season. This is valued at $440/t DM.
Depreciation is based on the 2021-22 actual values plus allowance 2 further years depreciation and for asset purchases and sales for 2022-23 and 2023-24.
|DAIRY GROSS FARM REVENUE||1,643,100||8.47||3,222||7,144|
|DAIRY OPERATING EXPENSES||1,118,100||5.76||2,192||4,861|
|DAIRY OPERATING PROFIT||525,000||2.70||1,029||2,283|
2020-21 Season review
|2020-21 Numbers at a glance|
|Milk Production (kgMS/ha)||931||936|
|Milk Production (kgMS/cow)||339||349|
|Net Dairy Cash Income ($/kgMS)||$6.54||$7.60|
|Total Farm Working Expenses ($/kgMS)||$3.99||$4.25|
|Cash Operating Surplus/Deficit ($/kgMS)||$2.05||$3.35|
|Gross Farm Revenue ($/kgMS)||$6.49||$7.54|
|Operating Expenses ($/kgMS)||$4.11||$4.42|
|Operating Profit ($/ha)||$2,173||$2,916|
*These KPI's are based on cashbook actuals to 31 May 2021 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
2019-20 Season review
|Milk Production (kgMS/ha)||936||817|
|Milk Production (kgMS/cow)||349||309|
|Net Dairy Cash Income ($/kgMS)||$6.93||$7.56|
|Total Farm Working Expenses ($/kgMS)||$3.87||$4.56|
|Cash Operating Surplus/Deficit ($/kgMS)||$3.07||$3.01|
|Gross Farm Revenue ($/kgMS)||$7.02||$7.46|
|Operating Expenses ($/kgMS)||$4.05||$4.78|
|Operating Profit ($/ha)||$2,782||$2,193|
*These KPI's are based on cashbook actuals to 31 May 2020 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
Feed situation May 2020
Dry off date: 50% on 13/3/2020 and 50% 16/3/2020.
Culls still on farm: 9 empty heifers and 2 cows (slips) – will go before late May if possible.
% Milking area regrassed: 12% of farm (67% in annuals and 33% permanent pasture) due for first graze soon. Sown mid to late April which is 2-4 weeks later than usual due to lack of moisture.
N applied this autumn to date: 50% of the farm @ 30kg N per ha, with autumn fertiliser. Application started late April (about 10 days late) as access to contractors was held up.
Planned N application to end of month: 25% of the farm @ 30 kg N per ha.
|Current situation||Target for 31/5/2020||Target for PSC|
|Body Condition Score||4.75 MA cows 5.2 Heifers||4.8 MA cows 5.3 Heifers||4.9 (none less than 4.7) MA cows 5.5 Heifers|
|APC kg DM/ha||2100||2450||2300|
|Growth rates kg DM/ha/day||38||36 is minimum to get to target||Average is usually 18-20|
|Supplements on hand||50 kg DM per cow wintered||21 kg DM per cow wintered||15 kg DM per cow wintered|
Actions taken to address the feed shortage
Plans to achieve target APC and BCS and PSC targets
Concerns and plans for the upcoming weeks
2018-19 Season review
|Milk Production (kgMS/ha)||936||899|
|Milk Production (kgMS/cow)||338||323|
|Net Dairy Cash Income ($/kgMS)||$6.35||$6.47|
|Total Farm Working Expenses ($/kgMS)||$3.65||$3.76|
|Cash Operating Surplus/Deficit ($/kgMS)||$2.69||$2.71|
|Gross Farm Revenue ($/kgMS)||$6.45||$6.40|
|Operating Expenses ($/kgMS)||$3.90||$4.02|
|Operating Profit ($/ha)||$2,384||$2,144|
*These KPI's are based on cash book actuals to 31 May 2019 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
2017-18 Season review
|Milk Production (kgMS/ha)||971||943|
|Milk Production (kgMS/cow)||347||340|
|Net Dairy Cash Income ($/kgMS)||$5.45||$5.78|
|Total Farm Working Expenses ($/kgMS)||$3.80||$3.66|
|Cash Operating Surplus/Deficit ($/kgMS)||$1.65||$2.18|
|Gross Farm Revenue ($/kgMS)||$5.21||$5.55|
|Operating Expenses ($/kgMS)||$4.02||$3.78|
|Operating Profit ($/ha)||$1,158||$1,669|
*These KPI's are based on cash book actuals to 31 May 2018 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
Spring was cold and relentlessly wet so got off to a slow start. Conditions improved from late September and because our farm drains well we had caught up lost production and were ahead by late November. Then the dry hit and production crashed precipitously! We put the cows onto once-a-day in early December and had no good quality feed to put them on so they didn't hold production levels as well as usual. Late summer things started to improve. We dropped only a proportion of our empties early as we had lots of feed all of a sudden. We had almost caught up with production again when we started feeding the maize. Unfortunately we had a new contractor this year and forgot to ask for a longer chop. It was fed out as we normally do but because it was a very fine chop and the grass was growing a lot more rapidly than normal - almost like spring pasture, a significant proportion of the herd developed ruminal acidosis to a greater or lesser extent. This dropped production precipitously again and it took a long time for the cows to pick up again this late in the season. We ended up with production 5,000 kg MS below budget but equal to last season which was not a particularly good season either!
The cows have picked up well since drying off and we are happy with their condition and have good pasture cover for next season. Have had a bit of an issue with lameness as the races have taken a hit with all the wet weather and cows have been stood off a bit as well.
Financially the year has gone reasonably well, with a slightly higher milk price offsetting the 3% lower than budget milk production.
Farm working expenses for the year finished at $3.66 per kg MS (including $1.15 per kg MS of owners PAYE wages). This is 3.7% less than budgeted with the main variation being that 100 t DM of maize budgeted to be purchased in the autumn was not needed as some extra Maize was grown, 5 ha more grass silage was made and very little was needed to be fed in the autumn due to exceptional pasture growth rates.
Despite the lack of deferred income of about $1.20 due to the 17-18 season being the first year of operation under this equity partnership, the business generated enough cash surplus to be able to repay the early season working capital borrowings, plus put aside sufficient funds to tide us over the 2018 winter and early spring.
Other points of interest
The maize was again planted with minimum tillage – spray and direct drill which does impact yield. It was slow establishing because of the dry conditions but despite that still gave 16-17 t DM per ha.
We are very happy with the minimum tillage approach as the soil structure is much improved and will continue with this method in the future.
N use was 85 kg N per ha which was similar to the previous season but up on budget, again largely due to the cold wet weather in the late spring period.
Somatic cell count for the season is 132400 which is up a little on the previous season but still reasonable given the cows were on once a day for so long and just how wet it was in the spring.
The first round of mating went well with good submission rates, however the very hot weather and poor quality pasture through late November and December resulted in above average numbers of late empty cows.
2016-17 Season review
|Financial KPI's*||Budget||Actual||Physical KPI's||2016/17|
|Net Dairy Cash Income ($/kgMS)||$4.67||$6.29||Milk Production (kgMS/ha)||923|
|Total Farm Working Expenses ($/kgMS)||$2.69||$2.95||Pasture and Crop Eaten (t DM/ha)||12.2|
|Cash Operating Surplus/Deficit ($/kgMS)||$1.98||$3.34||Imported Supplements & Dry Cow Grazing (% of total feed eaten)||5%|
|Gross Farm Revenue ($/kgMS)||$4.69||$6.33||Six Week In-Calf Rate (*A=Actual E=Estimated)||78% A*|
|Operating Expenses ($/kgMS)||$3.35||$3.65||First Calvers on Farm End of Season(% of first calvers at start of season)||88%|
|Operating Profit ($/ha)||$1,303||$2,517||Milksolids per Labour Unit (kgMS/FTE)||68,472|
*These KPI's are based on cash book actuals to 31 May 2017 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
The 16-17 season was one of two halves;
A cold wet August followed by a very dull, wet October with poorer pasture growth and quality due to less sunshine had an impact on production and costs for the first half of the season. Production was down 6,000 kg on budget by the end of December and more supplement had been purchased in early spring.
Better than average summer/autumn rainfall meant less supplement was needed and the decline in production was halted.
Below average pasture growth rates and very wet soil conditions in May 2017 has meant that the season has finished with cows in condition score 4.8 and pasture cover of 2,100 kg DM/ha, both of which are a little behind target. Continued slow pasture growth for the early winter and dull wet conditions are impacting our target pasture cover at calving.
A deliberate decision to carry out additional R &M in response to the increase in milk price accounted for $0.10 /kg MS and unplanned repairs to farm vehicles accounted for another $0.07/kg MS. This combined with production being down 3% on budget gave farm working expenses (FWE) for the year of $2.95 per kg MS ($0.26 /kg MS up on budget).
Keeping a close watch on the budget as the season unfolded meant that decisions could be made quickly as circumstances changed.
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.
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