Southland
Model Description
The Southland dairy model relates to owner operators who supply milk to the Fonterra factory at Edendale.
This model has increased significantly in size, stocking rate and production over several years. In 1995 the average farm size was 130 hectares (ha). In 2000/01 it was 182 ha, made up of 152 ha milking platform and a 30 ha leased run-off. The model has been increased in size from the 2001/02 season to a 162 ha milking platform and a purchased 30 ha run-off. Many farms in the model have been producing milk for less than 6 years. The size and production from these farms is still increasing.
Table 1: The Model in Summary 2003/04
Effective area: |
162 ha |
Opening stock wintered: |
|
Milking cows |
455 hd | ||
Replacement heifers |
115 hd | ||
Other cattle |
3 hd |
Table 2: Key Parameters
2000/01 |
2001/02 |
2002/03 |
2003/04 |
2004/05f | |
Effective area (ha) |
152 |
162 |
162 |
162 |
162 |
Cows wintered |
426 |
455 |
455 |
455 |
455 |
Cows milked at 15 December |
404 |
428 |
435 |
440 |
440 |
Stocking rate (cows/ha) |
2.60 |
2.64 |
2.68 |
2.7 |
2.7 |
Total milksolids (kg) |
151,500 |
162,640 |
152,250 |
160,125 |
164,525 |
Milksolids/ha |
996 |
1,003 |
940 |
988 |
1,016 |
KgMS/cow milked |
375 |
380 |
350 |
364 |
374 |
MS advance to end June ($/kg) |
4.40 |
4.70 |
3.30 |
3.72 |
3.37 |
MS deferred payment ($/kg) |
0.55 |
0.60 |
0.60 |
0.27 |
0.48 |
Gross farm revenue ($) |
810,109 |
947,022 |
651,574 |
683,062 |
674,841 |
Cash farm surplus ($) |
404,399 |
392,726 |
93,837 |
128,855 |
125,116 |
Net trading profit ($) |
405,245 |
344,145 |
43,493 |
93,170 |
89,867 |
Key Points
- A difficult season for northern Southland suppliers due to extremely dry conditions.
- Autumn recovery of feed and crops has turned around a potentially poor winter.
- Uncertainty over future milksolids payout, increased share price, and competition from the sheep industry mean slower dairy expansion.
- Farmers struggle to reduce cash farm expenditure to below $2.40/kgMS as many costs are "fixed" or seen as essential.
Physical Factors
The 2003/04 winter was remembered for the "exceptional" growth of brassica crops in June. Average pasture covers were up to 2,000 kgDM/ha by August 2003.
A wet, slow growing spring combined with persistent winds, meant growth rates were down by 28% through September and early October. Soil temperatures were at 9-10 oC for long periods. The winds persisted until Christmas, with less than average rainfall, especially inland, creating the conditions for a dry summer. A surge of grass growth in December created some respite from a "tight" first half of the season.
Woodland's grass growth in December/January was up by 40% on average. However, everything north of a line from Woodlands to Otautau recorded growth rates of 50-60% below average. The extremes occurred in the Riversdale/Balfour areas where grass growth declined to 15-20 kgDM/ha/day. This compared with irrigated land at 65 kgDM/ha.
February is usually a safe month to make hay but this season emerged as the wettest on record. The drought was broken and the feed situation reversed with the farms south of a line from Woodlands to Otautau seriously wet, creating lameness and delays in grass and cereal silage harvesting, and cultivation for re-sowing to grass. An average of 8% of the herd was lame for 5 weeks, which led to some cows being dried off earlier than usual.
March saw a general lift in pasture covers with growth rates up to 60% higher than average, enabling rotation length to slow down and a wedge of grass to be pushed forward for autumn.
Average pasture covers were 2,400 kgDM/ha (up 250 kgDM/ha from average at the beginning of April). This was eroded with a wintry blast over Easter and extremely wet conditions in the last week of April. Saturated soil conditions created pugging and further rain (5-10 mm) created wet, difficult conditions.
May was generally mixed, with more frosts than usual and below average sunshine, resulting in grass growth 40% below normal. Pasture covers reduced and, with minimal silage fed out until mid-April, average pasture cover at 1 June 2004 was 1,750 kgDM/ha.
Nitrogen use was around 150-200 kgN/ha with less used over summer due to dry conditions. However, the fear of a shortage of supplements and poor brassica crops when the rain arrived in February saw more nitrogen than normal used in this late summer period.
Whole crop silages had extremely variable yields, with spring sown crops in drier areas only averaging 6-8 tDM/ha. However, this feed was better than no feed in these areas.
The delayed harvest of wheat and triticale at optimum maturity frustrated growers. Under-sowing spring sown crops with grass proved successful and is a likely trend with spring sown barley crops for the future. Sales of grass silage averaged 12 c/kgDM as standing grass, with whole crop silage at 15 c/kgDM. Very little hay was made so straw was in demand. Straw purchases from Canterbury and Otago increase every year, but mouldy bales due to a wet prolonged harvest were an issue.
With low cereal prices, the use of meal has remained stable on those farms equipped to feed it. Straight crushed barley was popular, landed on-farm for $315/tonne-$330/tonne early season and $325/tonne-$350/tonne later on.
The effect of the dry starting early was the extremely variable germination rate of brassica crops which, in some cases, saw the weeds beat the crop. Rolling (even the ridged crops) was successful and a possible future solution. Crops in western Southland were badly affected by Diamond Back Moth.
Brassica recovery was better than expected, but yields were still 1-2 tonnes DM/ha down on average, with kale 10.0 tonnes DM/ha and swedes 12.0 tonnes DM/ha. Prices for Brassica crops firmed at 19 c/kgDM during the summer, but eased to 16 c/kgDM by June 2004.
Supplementary feed prices dramatically increased over summer with landed balage $65-$70/bale (38 c/kgDM). However, the good grass growth over March reduced prices to $58/bale (32 c/kgDM) landed in May.
Cull cows went to the freezing works from January with the drier areas first to de-stock. This helped ease demand for space at the meat companies later in the season. Empty stock were scanned early this season to assist with de-stocking, which was made easier because many bulls came out by 5 January to reduce induction requirements next season.
Despite the early removal of stock there was still a 2-week delay to get cows to the works in April/May. Low market prices for cull cows ($285) and a limited market for in-calf cows meant a number of "surplus" cows went to works. This was also due to the lack of dairy expansion and a shift to farms being self-contained.
The empty rate was 12.0% and continues the upward trend from 10.0% last season. Part of the reason was the bulls were taken out early, but poor conception rates due to the weather and feeding were also a factor.
Cow condition going into winter 2004 is above average, at plus 0.25 of a condition score. There was a general trend to put young cows on once-a-day milking, especially in January in the dry areas and later in the season in coastal areas.
Milk quality struggled in the wet spring and some herds were forced to milk twice-a-day or every 16 hours when once-a-day was preferable, due to high cell count risks and the immediate penalty imposed this season once over 400,000 SCC/ml. Sixteen-hour milkings were popular in all areas during February and March, especially where high cell counts were an issue.
Milk production per cow per day peaked at 1.9 kgMS/cow in October and slumped significantly in January to 1.25 kgMS/cow, increasing to 1.45 kgMS/cow after the rain in February and March. The comparatively kind May allowed an average lactation length of 265 days.
Total production for the season was 364 kgMS/cow (988 kgMS/effective ha), and was up 5.2% on last season and equal to the 2001/02 season. The southern South Island region was up 7% on the 2002/03 season.
Table 3: Supplementary Feed Costs
May 2002 |
May 2003 |
May 2004 | |
Balage ($/180 kgDM) |
50.00 |
60.00 |
50.00 |
Hay ($/225 kgDM) |
55.00 |
55.00 |
45.00 |
High energy meal ($/t) |
445.00 |
400.00 |
380.00 |
Winter crop ($/kgDM) |
0.16 |
0.17 |
0.16 |
Winter grazing cows ($/hd/wk) |
18.00 |
18.00 |
18.00 |
Grazing 2yr heifers ($/hd/wk) |
6.35 |
6.35 |
6.25 |
Grazing calves ($/hd/wk) |
4.00 |
3.75 |
3.65 |
Straw ($/160 kgDM) |
34.00 |
40.00 |
35.00 |
Table 4: Number of Suppliers and Production
1998/99 |
1999/2000 |
2000/01 |
2001/02 |
2002/03 |
2003/04 | |
Number of suppliers |
458 |
498 |
504 |
555 |
617 |
613 |
Total supplied (million kgMS) |
54 |
60 |
74.4 |
76.2* |
101* |
143.9 |
Litres (million) |
653 |
773 |
885 |
983 |
1,191* |
1,674 |
Volumes (tonnes): |
19,500 |
26,700 |
23,400 |
29,129 |
4,803 |
14,983 |
Milk powder |
36,000 |
40,395 |
40,489 |
36,396 |
108,530 |
160,370 |
Lactose |
5,400 |
6,000 |
6,164 |
6,583 |
5,312 |
5,996 |
Whey cheese |
1,200 |
1,650 |
1,179 |
1,209 |
1,452 |
938 |
AMF |
11,500 |
14,300 |
19,496 |
22,738 |
32,240 |
28,244 |
Casein |
4,900 |
7,790 |
14,433 |
12,936 |
8,183 |
2,491 |
*Does not include Southland milksolids processed at other factories. Source: Fonterra, Edendale
Financial Factors
2003/04 Review
Revenue
Gross farm revenue increased 5% to $683,062, or $1,552/cow. This was a result of a better payout within the season ($3.99/kgMS net) and better per hectare performance (up 5.1%).
This was an average result for Southland. Many northern Southland dairy units had less income from milk and higher feed costs. Wetter areas enjoyed the drier conditions and production increased compared with previous years.
Calf sales and cull cow prices were below what was expected, at $36/hd and $293/hd respectively. Some farmers sold heifers for export to China at prices ranging from $800-$1,000/hd. The sale price of MA cows declined from the 2002/03 season, with the majority of sales ranging from $700-$900/hd. Sale price depended on when the cows were marketed and whether they had a recorded performance.
Milksolids revenue made up 93% of gross farm revenue. Other farm revenue was $4,114 and came from rebates, pool payments and incidentals.
Expenditure
Cash farm expenditure was $2.56/kgMS, or 60% of gross farm revenue. This was down 6.6% on the previous season mainly due to a reduction in feed costs and an increase in total milksolids produced. There were also reductions in the amount spent on labour, animal health and fertiliser. Farmers initially planned to spend $2.35/kgMS, but found it difficult to prune costs to this extent. Industry commentators suggest that dairy farmers have little room to reduce costs without affecting productivity.
The drought impacted to varying degrees depending on location, and particularly affected feed costs.
Feed ($110,800), labour ($71,544) and fertiliser ($59,247) remained the three highest expenditure items. Some costs such as rates, insurance and administration increased by between 5% and 14%.
Development ($5,830) and capital expenditure ($36,000) were lower than the 2002/03 season, but still at levels that maintained plant, land and buildings. This follows 2 years of above average expenditure on capital items.
The model did not repay any principal, and debt servicing was higher due to increased current account balances for a longer period. Debt servicing accounted for 21% of gross farm revenue.
Due to the income swings from 2001/02 to 2002/03 and high provisional payments in 2002/03, many farmers received a tax refund this year. The model paid $8,905 in tax, compared with $110,000 in the 2001/02 year.
Net Result
The model showed a cash farm surplus of $128,855, or $293/cow. This is a 39% increase on the 2002/03 season, and reflects the increase in payout and production, but continued high levels of expenditure.
After adjustments for depreciation and change in the value of livestock, the net trading profit was $93,170, or $212/cow.
This profit was available for taxation, drawings, principal repayments, development and capital purchases. The net cash change was a $27,120 surplus, but dairy farmers in the drier areas would not have achieved this figure.
Southland Profitability Trends
2004/05 Forecast
Revenue
The advance to the end of the 2004/05 season is expected to be $3.37/kgMS, with a final payout of $3.82/kgMS (net of levies). The deferred payment from the 2003/04 season is 48 c/kgMS, lower than average, but better than the 27 c/kgMS deferred payment in the 2003/04 season.
Milksolids revenue is expected to be down by $10,267, or $23.33/cow, due to the lower advance. However, farmers are hoping for better production than the 2003/04 season. Cows in milk will stay the same, but per head production is budgeted to increase by 10 kgMS/cow.
Gross farm revenue for 2004/05 is budgeted at $674,841, or $1,534/cow.
Expenditure
Cash farm expenditure is budgeted to decrease from $409,777 to $405,182 (down 2%). However, due to more kilograms of milksolids being produced, the cash farm expenditure reduces by 4.6% to $2.46/kgMS.
This figure is still not as low as farmers would prefer, but they feel they cannot trim costs further and still maintain productive capacity.
Feed costs remain relatively constant, although some feeds have come down in price from previous years (see Table 3).
Farmers were not factoring in increases in fuel costs and are hoping the recent capital expenditure on new equipment will mean fewer and smaller repair bills.
Cash farm expenditure, as a percentage of gross farm revenue, will stay at around 60%, the highest ratio for many seasons.
Although farmers had a $27,000 cash surplus in 2003/04, the advance milksolids per kilogram price means they will have overdrafts for longer. Farmers expect the interest rate to rise by 0.25-0.3% over the year on loans with floating rates. Debt servicing as a percentage of gross farm revenue will be 21%. The model is on an interest-only loan.
Dairy farmers are likely to be autumn spenders, putting off purchases until they are in a better position and the final milksolids payout is known.
Farmers still plan some development ($5,000) but will reduce capital expenditure ($20,000).
Net Result
The model predicts a cash farm surplus of $125,116 or $204/cow. After adjustments for depreciation and change in livestock values, the net trading profit is expected to be $89,867. This is similar to the 2003/04 season.
After tax, drawings, principal, development and capital purchases are paid, the net cash change is predicted to be a surplus of $31,185.
Issues and Trends
There are few if any new dairy conversions planned. Sheep and beef farmers are enjoying relatively good incomes so there is little incentive for them to diversify. This model has $917,000 of capita,l or $5,700/ha, invested in Fonterra shares. This large capital requirement to supply Fonterra reduces the ability to buy land at current prices and convert to dairy, especially for first-time farm owners. The lower milksolids payout and future projections have also curbed enthusiasm for conversions. There were a few dairy farms converting to other livestock options.
The empty cow rate is increasing each year as farmers aim for a more compact calving without resorting to inductions.
The export of Friesian yearlings and in-calf heifers to China has been significant and may continue next year. This means fewer heifers to choose replacements from, but demand for cows and heifers is still low. Stock values have again dropped from the 2003/03 season, highlighting the vulnerability of sharemilkers' equity.
The use of feed pads and other wintering facilities is becoming a trend. Farmers are using the pads to reduce stress on animals, avoid compaction of soils and safeguard spring production. The detrimental effects of soil compaction are being recognised, with more dairy farmers aerating parts of their farms each year.
Part or fully self-contained options are constantly being looked at, with a small number of farmers shifting to wintering a significant proportion of their stock at home.
The trend of increasing nitrogen fertiliser use continues. Nitrogen is put on in several applications and is still an inexpensive way to provide feed.
After the extremely dry summer in northern Southland, more farmers in this area are looking at irrigation for a more reliable feed supply.
The unusually high incidence of peritonitis in southern cull cows is being linked to increased brassica feeding over winter.
Agricultural contractors suffered an extremely quiet season during the dry conditions. Fuel price rises will put pressure on the industry and affect other cash farm expenditure.
Almost full employment in the South means attracting new people to the industry is difficult. In some cases, this is affecting dairy farm productivity. The Employment Relations Act and the more recent Holidays Act require more time to understand and administer, as well as generating more costs for dairy farmers.
Southland Budget
2003/04 |
2004/05f | ||||||
Whole farm |
per cow |
per kgMS |
Whole farm |
per cow |
per kgMS | ||
Revenue |
|
|
|
|
|
|
|
Milksolids |
636,773 |
1,447 |
3.98 |
|
626,506 |
1,424 |
3.81 |
Cattle |
43,177 |
98 |
0.27 |
|
45,435 |
103 |
0.28 |
Other farm income |
4,114 |
9 |
0.03 |
|
4,000 |
9 |
0.02 |
Less: |
|
|
|
|
|
|
|
Cattle purchases |
1,002 |
2 |
0.01 |
|
1,100 |
3 |
0.01 |
Gross farm revenue |
683,062 |
1,552 |
4.27 |
|
674,841 |
1,534 |
4.10 |
Cash farm expenditure |
409,777 |
931 |
2.56 |
|
405,182 |
921 |
2.46 |
Interest |
144,430 |
328 |
0.90 |
|
144,542 |
329 |
0.88 |
Rent and/or leases |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Cash farm surplus |
128,855 |
293 |
0.80 |
|
125,116 |
284 |
0.76 |
Stock value adjustment |
-7,935 |
-18 |
-0.05 |
|
-6,262 |
-14 |
-0.04 |
Minus depreciation |
27,750 |
63 |
0.17 |
|
28,988 |
66 |
0.18 |
Net trading profit |
93,170 |
212 |
0.58 |
|
89,867 |
204 |
0.55 |
Taxation |
8,905 |
20 |
0.06 |
|
20,931 |
48 |
0.13 |
Net trading profit after tax |
84,265 |
192 |
0.53 |
|
68,936 |
157 |
0.42 |
Allocation of Funds |
|
|
|
|
|
|
|
Add back depreciation |
27,750 |
63 |
0.17 |
|
28,988 |
66 |
0.18 |
Reverse stock value adjustment |
7,935 |
18 |
0.05 |
|
6,262 |
14 |
0.04 |
Drawings |
51,000 |
116 |
0.32 |
|
48,000 |
109 |
0.29 |
Principal repayments |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Development |
5,830 |
13 |
0.04 |
|
5,000 |
11 |
0.03 |
Capital purchases |
36,000 |
82 |
0.22 |
|
20,000 |
45 |
0.12 |
Disposable surplus/deficit |
27,120 |
62 |
0.17 |
|
31,185 |
71 |
0.19 |
Other Cash Sources |
|
|
|
|
|
|
|
New borrowing |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Off-farm income |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Other cash income |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Net cash change |
27,120 |
62 |
0.17 |
|
31,185 |
71 |
0.19 |
Assets and Liabilities |
|
|
|
|
|
|
|
Farm, forest & building (opening) |
2,600,000 |
5,909 |
16.24 |
|
2,436,000 |
5,536 |
14.81 |
Plant and machinery (opening) |
185,000 |
420 |
1.16 |
|
193,250 |
439 |
1.17 |
Stock valuation (opening) |
425,905 |
968 |
2.66 |
|
417,970 |
950 |
2.54 |
Dairy company shares |
866,871 |
1,970 |
5.41 |
|
917,290 |
2,085 |
5.58 |
Total farm capital |
4,077,776 |
9,268 |
25.47 |
|
3,964,510 |
9,010 |
24.10 |
Total debt opening |
1,858,604 |
4,224 |
11.61 |
|
1,828,078 |
4,155 |
11.11 |
Equity (assets-liabilities) |
2,219,172 |
5,044 |
13.86 |
|
2,136,432 |
4,856 |
12.99 |
2003/04 |
2004/05f | ||||||
Whole farm |
per cow |
per kgMS |
Whole farm |
per cow |
per kgMS | ||
Farm Working Expenses |
|||||||
Permanent wages |
65,560 |
149 |
0.41 |
|
68,200 |
155 |
0.41 |
Casual wages |
5,984 |
14 |
0.04 |
|
5,984 |
14 |
0.04 |
ACC |
2,120 |
5 |
0.01 |
|
2,161 |
5 |
0.01 |
Animal health |
25,620 |
58 |
0.16 |
|
25,080 |
57 |
0.15 |
Breeding |
13,706 |
31 |
0.09 |
|
13,200 |
30 |
0.08 |
Dairy shed expenses |
8,404 |
19 |
0.05 |
|
7,480 |
17 |
0.05 |
Electricity |
12,320 |
28 |
0.08 |
|
13,200 |
30 |
0.08 |
Feed (hay and silage) |
35,640 |
81 |
0.22 |
|
36,080 |
82 |
0.22 |
Feed (feed crops) |
44,880 |
102 |
0.28 |
|
30,360 |
69 |
0.18 |
Feed (grazing) |
30,360 |
69 |
0.19 |
|
44,000 |
100 |
0.27 |
Feed (other) |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Fertiliser |
54,443 |
124 |
0.34 |
|
57,200 |
130 |
0.35 |
Lime |
4,804 |
11 |
0.03 |
|
2,640 |
6 |
0.02 |
Freight (not elsewhere deducted) |
5,315 |
12 |
0.03 |
|
4,840 |
11 |
0.03 |
Regrassing costs |
6,948 |
16 |
0.04 |
|
6,160 |
14 |
0.04 |
Weed and pest control |
3,485 |
8 |
0.02 |
|
2,860 |
7 |
0.02 |
Fuel |
10,424 |
24 |
0.07 |
|
10,120 |
23 |
0.06 |
Vehicle costs (excluding fuel) |
12,483 |
28 |
0.08 |
|
12,320 |
28 |
0.07 |
Repairs and maintenance |
24,478 |
56 |
0.15 |
|
21,560 |
49 |
0.13 |
Communication costs (phone and mail) |
4,840 |
11 |
0.03 |
|
4,400 |
10 |
0.03 |
Accountancy |
4,044 |
9 |
0.03 |
|
3,520 |
8 |
0.02 |
Legal and consultancy |
3,916 |
9 |
0.02 |
|
3,080 |
7 |
0.02 |
Other administration |
5,280 |
12 |
0.03 |
|
4,840 |
11 |
0.03 |
Water charges (irrigation) |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Rates |
10,120 |
23 |
0.06 |
|
9,944 |
23 |
0.06 |
Insurance |
6,996 |
16 |
0.04 |
|
7,040 |
16 |
0.04 |
Other expenditure |
7,609 |
17 |
0.05 |
|
8,914 |
20 |
0.05 |
Cash farm expenditure |
409,777 |
931 |
2.56 |
|
405,182 |
921 |
2.46 |
|
|
|
|
|
|
|
|
Calculated Ratios |
|
|
|
|
|
|
|
Economic farm surplus (or EBIT) |
162,600 |
370 |
1.02 |
|
159,409 |
362 |
0.97 |
Cash farm expenditure/GFR |
60% |
|
|
|
60% |
|
|
EFS/total farm capital |
4.0% |
|
|
|
4.0% |
|
|
EFS less interest and lease/equity |
0.8% |
|
|
|
0.7% |
|
|
Interest+rent+lease/GFR |
21.1% |
|
|
|
21.4% |
|
|
EFS/GFR |
23.8% |
|
|
|
23.6% |
|
|
|
Economic Farm Surplus (EFS) is calculated as follows: | |||||||
Contact for Enquiries
Farm Monitoring Programme Manager
Monitoring and Evaluation
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
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