Otago Dry Hill
Model Description
This model represents 400 farms in the Otago area. These farms range in size from 500-4,000 hectares (ha), and are spread from Kurow in North Otago to Millers Flat in Central Otago, with the main concentration being in the Middlemarch and inland Palmerston areas. The model size is 2,000 ha.
This model has increased significantly in size. In 1995 the average farm size was 1,025 ha and 5,100 su. In 1998 the average farm size was 1,500 ha and 5,650 su. In 2002 the average farm size increased to 2,000 ha and 6,600 su. There is an ongoing trend to larger farm size.
These farms are characterised by systems that cope with dry summers and long, cold winters. The rainfall is 400-700 mm per annum, but drought days number over 100 per year.
These properties are predominantly hill with a small area of valley floor. Some have a small area of irrigated valley floor. They differ from downland farms in that they are more extensive, are at a higher altitude, sell more store stock, have lower stocking rates and stock performance, and have more stock units.
Table 1: The Model in Summary 2003/04
Effective area: |
2,000 ha |
Total stock units wintered: |
6,555 su |
Opening stock wintered: |
Breeding cows |
100 hd | |
Breeding ewes |
4,593 hd |
R1yr cattle |
50 hd |
Replacement ewe hoggets |
1,133 hd |
R2yr cattle |
15 hd |
Other sheep |
221 hd |
Other cattle |
3 hd |
Table 2: Key Parameters
2000/01 |
2001/02 |
2002/03 |
2003/04 |
2004/05f | |
Effective area (ha) |
1,500 |
2,000 |
2,000 |
2,000 |
2,000 |
Opening sheep stock units |
4,853 |
5,489 |
5,675 |
5,630 |
5,537 |
Opening cattle stock units |
791 |
925 |
971 |
925 |
994 |
Opening total stock units |
5,643 |
6,400 |
6,646 |
6,555 |
6,531 |
Stocking rate (su/ha) |
3.8 |
3.2 |
3.3 |
3.3 |
3.3 |
Ewe lambing % |
116 |
112 |
110 |
110 |
117 |
Average lamb price ($/hd) |
56.00 |
61.75 |
50.94 |
45.87 |
51.05 |
Average wool price ($/kg) |
3.11 |
4.28 |
4.95 |
4.44 |
4.46 |
Total wool produced (kg) |
22,796 |
23,250 |
24,900 |
24,073 |
23,611 |
Wool production (kg/ssu) |
4.7 |
4.24 |
4.39 |
4.28 |
4.26 |
Average R2yr steer ($/hd) |
887 |
919 |
818 |
664 |
701 |
Average cull cow ($/hd) |
765 |
780 |
510 |
415 |
437 |
Gross farm revenue ($) |
343,197 |
432,095 |
409,430 |
372,546 |
397,629 |
Cash farm surplus ($) |
134,186 |
163,508 |
133,915 |
89,515 |
123,439 |
Net trading profit ($) |
132,247 |
163,046 |
119,726 |
52,225 |
108,572 |
Key Points
- Average lamb price was reduced by $5/hd compared with 2002/03.
- Low levels of supplementary feed were made this year and most farms have exhausted all reserves in the winter of 2003. There will be a heavier reliance on green feed crops and bought in feed in 2004/05.
- Winter rain and a favourable spring are required for farmers to reach production expectations for 2004/05.
- Farmers expect to finish 60% of lambs sold in 2004/05 compared with 36% in 2003/04.
- Net farm equity has increased by $500,000 to $2.8 million through continued capital gain.
Physical Factors
Otago dry hill properties experienced a cool dry spring in 2003 followed by a very dry summer. Late summer rains fell in February enabled many farmers to direct drill green feed crops to offset earlier failed winter brassica crops and poor hay and silage yields
Most Otago dry hill properties entered the 2004 autumn with very low levels of supplement feed, resulting in above average quantities of grain, balage and hay being purchased.
Generally stock were in good condition despite the dry summer. There was an increase in the use of nitrogen based fertiliser in the 2004 autumn, particularly to boost winter green feed crop yields.
The average lambing percentage across the model was similar to 2002/03 at 110%.
Breeding cow scanning percentages for 2004 are down significantly on previous years. The past four seasons have been particularly difficult, with no abundance of cattle feed. Poor breeding cow condition at mating in the spring/early summer of 2003 significantly impacted on conception rates. Results varied from 50-90% of cows detected pregnant from cows mated.
On average 19% of ewe hoggets were mated in 2002/03, while 33% were mated in 2003/04. The hogget lambing percentage is expected to be 49%, equal to the 2002/03 result.
Wool production dropped from 4.39 kg/ssu in 2002/03 to 4.28 kg/ssu in 2003/04 as a result of the dry summer season.
Farmers expect to finish 60% of lambs sold in 2004/05 compared with 36% in 2003/04.
Financial Factors
2003/04 Review
Revenue
Gross farm revenue decreased to $372,550 ($56.83/su) from the budgeted $389,510 ($60.86/su). This was the net result of a $5/hd reduction in lamb price and a 2% decrease in lambing percentage. Sheep revenue was $60.03/ssu compared with $64.19/ssu in 2002/03, whereas cattle revenue was $32.10/csu compared with $35.18/csu in 2002/03.
Gross farm revenue for the top quartile farmers was $59.45/su, consisting of sheep gross revenue of $64.82/ssu and cattle gross revenue of $37.44/csu. (Top quartile farms are measured by gross revenue per stock unit minus farm working expenses.)
Wool revenue contributed to 28% of total gross farm revenue in 2003/04 despite a decline in the overall wool price by 10% from $4.95/kg to $4.44/kg. In 2002/03, wool contributed 30% of total gross farm revenue. The top quartile wool price was $4.60/kg and wool weight 4.52kg/ssu. Wool weight for the average was 4.27kg/ssu.
The average lamb price in 2003/04 was $45.87/hd, a $5.07/hd decrease from $50.94/hd in the previous year. Thirty six percent of the lambs sold in this model were sold finished for slaughter at an average price of $54.08/hd, compared with $56.10/hd in 2002/03. The balance of the lambs were sold store at an average price of $41.16/hd compared with $45.10/hd in 2002/03.
The top quartile farmers lamb price for 2003/04 was $50.27/hd with 45% being finished at $56.86/hd. Lambing percentage was also up on these farms at 115%, compared with 110% for the average.
Many farmers sold lambs to freezing companies at reduced weights (down to 32 kgLW) at weaning, due to the store lamb market saturation in January. February rains assisted store prices, but most store lambs had been already sold.
Hoggets carried through the 2003 winter sold at an average of $63.03/hd. Ewe sale prices averaged $40.30/hd. Steer calves sold for $319/hd compared with $340/hd in 2002/03. Older steers sold for $646/hd compared with $818/hd in 2002/03. Cull cows averaged $415/hd whereas R2yr heifers sold for $550/hd. Other farm income was $4,820.
Gross farm revenue per kilogram of product sold (carcass weight meat and wool) was $3.20/kg for the model average, whereas the top quartile achieved $3.22/kg.
Table 3: Cash Farm Revenue ($)
Actual |
Actual |
Estimate |
Forecast | |
Sheep sales less purchases |
279,302 |
241,050 |
231,147 |
252,184 |
Cattle sales less purchases |
47,133 |
34,160 |
29,700 |
34,818 |
Wool |
99,510 |
123,250 |
106,883 |
105,305 |
Other income |
6,150 |
10,970 |
4,816 |
5,322 |
Gross farm revenue |
432,095 |
409,430 |
372,546 |
397,629 |
Expenditure
Farm working expenses were $241,000, or $36.74/su exclusive of interest, representing 65% of gross farm revenue. Farmers continue to channel higher expenditure back into their farms to improve the productive capacity of their property. Top quartile farmers were spending $32.69/su, representing only 55% of gross farm revenue.
Feed costs increased to $21,330 ($3.25/su) from $15,595 ($2.35/su) in 2002/03, and up from $9,215 ($1.44/su) in 2001/02. There was a continuing trend to purchase grain and nuts in the autumn. This was due to consecutive years of low levels of supplements being made on farm, lower autumn pasture covers, and more farmers wanting to flush ewes with high energy feeds.
Labour costs have remained constant at $21,000.
The use of contractors for regrassing has decreased slightly to $4,174 from $5,560 in 2002/03. More farmers are using direct drill technology and moving towards owning or jointly owning specialist drills.
Fertiliser expenditure was $45,570 or $6.95/su. This includes lime at $1,720. Top quartile farmers spent $5.62/su on fertiliser. Both were above maintenance applications which indicate ongoing development and catch-up applications.
Repairs and maintenance expenditure decreased to $12,055 from $14,890 in 2002/03.
Insurance expenditure increased to $5,960, or $0.90/su, from $4,860, or $0.73/su, representing a 23% increase.
Debt servicing was $38,725 or $5.85/su, which was 11.3% of gross farm revenue. Cash drawings remained at $43,000, similar to the past three years.
Capital expenditure on vehicles and machinery decreased to $16,000 from $31,000 in 2002/03. Over the past two years a significant amount of vehicles and machinery have been updated and most farms are satisfied with their standard of equipment.
Farm working expenses per kg of product sold were $2.06/kg for the model average compared with $1.99/kg for the top quartile of farms.
Net Result
The Otago dry hill farm model recorded a net cash change of $985 ($0.15/su) for the 2003/04 year with no debt repayment or new borrowings. Top quartile farmers achieved a final cash surplus of $4/su, or $26,000, which included debt repayment of $0.70/su.
Net trading profit was $52,000, which is down significantly from $120,000 in 2002/03.
Net return per kilogram of product sold prior to interest, depreciation and rent was $1.14/kg for the model average and $1.23/kg for the top quartile.
The model farm showed a return on capital of 1.2% and a return on equity of -0.3% (excluding capital gain).
At June 2004 the model property was valued at $2,739,000 for land and buildings ($420/su). Total farm capital for this 2,000 ha property at July 2004 was around $3.3 million and equity of $2.8 million
Otago Dry Hill Profitability Trends
2004/05 Forecast
Revenue
Gross farm revenue is budgeted to increase in 2004/05 to $397,629, or $60.88/su. Cattle income is expected to rise slightly due to higher price expectations for older cattle. Wool income is expected to remain similar to 2003/04. Lambing percentages are expected to increase to 117%. Average lamb price is expected to increase to $51.05 ($45.87/hd in 2003/04) due to 60% of lambs forecast to be sold prime, as opposed to 42% this year.
The top quartile are budgeting gross farm revenue of $64.53/su, up $2.87/su on the average, with 70% of lambs to be sold finished at $57.39/hd. The forecast average lamb price of the top quartile is $54.46/hd, with an expected lambing percentage of 123%.
Expenditure
Cash farm expenditure is expected to decrease from $241,000 to $230,000, or $35.28/su. This reduces farm costs to 58% of gross farm revenue, from 65% in 2003/04. The top quartile is forecast to spend $33.28/su on cash farm expenditure or 52% of gross farm revenue.
The model average is expected to spend 25% more on making hay and silage than in previous years and decrease grazing and feed purchased. The overall feed and supplement cost is forecast at $2.40/su compared with $3.25/su in 2003/04.
Fertiliser and lime expenditure is budgeted at $6.85/su which is similar to 2003/04, at $6.95/su.
Drawings are budgeted to remain stable at $43,000, and capital purchases are expected to decrease slightly to $14,500.
Net Result
The model farm is expected to generate a cash surplus of $26,000 ($4.02/su) in 2004/05. Net trading profit is forecast to increase from $52,000 in 2003/04 to $108,000.
Lamb and sheep sales are expected to contribute 63% of revenue, whereas wool sales are forecast to generate 26% of farm revenue.
Issues and Trends
Farm development programmes are continuing despite a reduction in gross and net income. Some farmers are investigating on-farm water storage for micro-irrigation schemes.
Very low levels of supplementary feed were made this year and most farms had exhausted all reserves in the winter of 2003. During the 2004 winter there is heavier reliance on green feed crops and bought-in feed.
Winter rain and a favourable spring are required for farmers to reach production expectations for next year.
Higher lice populations have occurred this year due to less dipping for fly control in the 2003/04 season.
There is growing discontent with local government rating-structures for farmers. Farmers are expecting local government rates to continue to increase with no extra service received.
Most farms in this model are described as breeding properties as opposed to finishing. However, most are aiming to finish 60% of their sale lambs. Industry perception is that farmers in this model should be concentrating on lifting lambing percentage as opposed to finishing lambs.
All farmers in this farm class have increased their equity. This was achieved through capital gain rather than financial performance.
Many farmers are now readdressing their overall breeding cow policy with many considering reducing cow numbers, due to the recent dry years limiting spring and summer cattle grazing.
Some exceptionally high land sale values of smaller properties in excess of $600/su are making it financially difficult for farmers to purchase additional land for expansion.
Otago Dry Hill Budget
2003/04 |
2004/05f | ||||||
Whole farm |
per ha |
per su |
Whole farm |
per ha |
per su | ||
Revenue |
|||||||
Sheep |
238,007 |
119 |
42.27 |
259,184 |
130 |
46.81 | |
Wool |
106,883 |
53 |
18.90 |
105,305 |
53 |
19.02 | |
Cattle |
32,850 |
16 |
35.51 |
37,968 |
19 |
38.21 | |
Grazing income |
0 |
0 |
0.00 |
0 |
0 |
0.00 | |
Other farm income |
4,816 |
2 |
0.73 |
5,322 |
3 |
0.81 | |
Less: |
6,860 |
3 |
1.21 |
7,000 |
4 |
1.26 | |
Cattle purchases |
3,150 |
2 |
3.41 |
3,150 |
2 |
3.17 | |
Gross farm revenue |
372,546 |
186 |
56.83 |
397,629 |
199 |
60.88 | |
Cash farm expenditure |
240,807 |
120 |
36.74 |
230,396 |
115 |
35.28 | |
Interest |
38,724 |
19 |
5.91 |
40,294 |
20 |
6.17 | |
Rent and/or leases |
3,500 |
2 |
0.53 |
3,500 |
2 |
0.54 | |
Cash farm surplus |
89,515 |
45 |
13.66 |
123,439 |
62 |
18.90 | |
Stock value adjustment |
-13,465 |
-7 |
02.05 |
8,043 |
4 |
1.23 | |
Minus depreciation |
23,825 |
12 |
3.63 |
22,911 |
11 |
3.51 | |
Net trading profit |
52.225 |
26 |
7.97 |
108,572 |
54 |
16.62 | |
Taxation |
16,250 |
8 |
2.48 |
26,184 |
13 |
4.01 | |
Net trading profit after tax |
35,975 |
18 |
5.49 |
82,388 |
41 |
12.61 |
|
| Allocation of Funds | |||||||
Add back depreciation |
23,825 |
12 |
3.63 |
22,911 |
11 |
3.51 | |
Reverse stock value adjustment |
13,465 |
7 |
2.03 |
-8,043 |
-4 |
-1.23 | |
Drawings |
43,000 |
22 |
6.49 |
43,000 |
22 |
6.58 | |
Principal repayments |
0 |
0 |
0.00 |
0 |
0 |
0.00 | |
Development |
17,000 |
9 |
2.57 |
17,000 |
9 |
2.60 | |
Capital purchases |
16,000 |
8 |
2.44 |
14,500 |
7 |
2.22 | |
Disposable surplus/deficit |
-2,735 |
-1 |
-0.42 |
22,756 |
11 |
3.48 | |
Other Cash Sources |
|||||||
New borrowing |
0 |
0 |
0.00 |
0 |
0 |
0.00 | |
Off-farm income |
3,720 |
2 |
0.57 |
3,470 |
2 |
0.53 | |
Other cash income |
0 |
0 |
0.00 |
0 |
0 |
0.00 | |
Net cash change |
985 |
0 |
0.15 |
26,226 |
13 |
4.02 | |
Assets and Liabilities |
|||||||
Farm, forest and building (opening) |
2,100,000 |
1,050 |
320.36 |
2,600,000 |
1,300 |
398.09 | |
Plant and machinery (opening) |
145,000 |
73 |
22.12 |
139,250 |
70 |
21.32 | |
Stock valuation (opening) |
594,384 |
297 |
90.68 |
580,919 |
290 |
88.94 | |
Total farm capital |
2,839,384 |
1,420 |
433.16 |
3,320,169 |
1,660 |
508.35 | |
Total debt opening |
523,300 |
262 |
79.83 |
523,300 |
262 |
80.12 | |
Equity (farm assets-liabilities) |
2,316,084 |
1,158 |
353.33 |
2,796,869 |
1,398 |
428.23 | |
|
2003/04 $ |
|
2004/05f $ |
||||
|
Whole farm |
per ha |
per su |
|
Whole farm |
per ha |
per su |
Farm Working Expenses |
|
|
|
|
|
|
|
Permanent wages |
0 |
0 |
0.00 |
|
0 |
0 |
0.00 |
Casual wages |
21,065 |
11 |
3.21 |
|
21,880 |
11 |
3.35 |
ACC |
4,887 |
2 |
0.75 |
|
2,876 |
1 |
0.44 |
Animal health |
5,500 |
3 |
0.83 |
|
5,485 |
3 |
0.84 |
Breeding |
21,860 |
11 |
3.33 |
|
21,555 |
11 |
3.30 |
Electricity |
1,655 |
1 |
0.25 |
|
1,700 |
1 |
0.26 |
Feed (hay and silage) |
3,910 |
2 |
0.60 |
|
4,050 |
2 |
0.62 |
Feed (crops) |
9,805 |
5 |
1.50 |
|
12,215 |
6 |
1.87 |
Feed (grazing) |
2,250 |
1 |
0.34 |
|
1,175 |
1 |
0.18 |
Feed (other) |
9,275 |
5 |
1.41 |
|
2,285 |
1 |
0.35 |
Fertiliser |
43,850 |
22 |
6.69 |
|
42,390 |
21 |
6.49 |
Lime |
1,720 |
1 |
0.26 |
|
2,350 |
1 |
0.36 |
Farm forestry costs |
0 |
0 |
0.00 |
|
250 |
0 |
0.04 |
Freight (not elsewhere deducted) |
5,430 |
3 |
0.83 |
|
4,835 |
2 |
0.74 |
Regrassing costs (contractors) |
4,175 |
2 |
0.64 |
|
2,480 |
1 |
0.38 |
Seeds |
9,740 |
5 |
1.49 |
|
9,145 |
5 |
1.40 |
Shearing costs (per SSU) |
27,360 |
14 |
4.84 |
|
27,825 |
14 |
5.02 |
Weed and pest control |
10,200 |
5 |
1.54 |
|
10,320 |
5 |
1.58 |
Fuel |
9,405 |
5 |
1.43 |
|
9,730 |
5 |
1.49 |
Vehicle costs (excluding fuel) |
8,280 |
4 |
1.26 |
|
7,580 |
4 |
1.16 |
Repairs and maintenance |
12,055 |
6 |
1.84 |
|
12,085 |
6 |
1.85 |
Communication costs (phone and mail) |
9,500 |
5 |
1.45 |
|
9.755 |
5 |
1.49 |
Accountancy |
2,715 |
1 |
0.41 |
|
2,680 |
1 |
0.41 |
Legal and consultancy |
5,960 |
3 |
0.91 |
|
6,140 |
3 |
0.94 |
Other administration |
3,380 |
2 |
0.52 |
|
3,070 |
2 |
0.47 |
Rates |
2,075 |
1 |
0.32 |
|
1,855 |
1 |
0.28 |
Insurance |
1,855 |
1 |
0.28 |
|
1,785 |
1 |
0.27 |
Other expenditure |
2900 |
1 |
0.44 |
|
2,900 |
1 |
0.44 |
Cash farm expenditure |
240,807 |
120 |
36.74 |
|
230,396 |
115 |
35.28 |
|
|
|
|
|
|
|
|
|
Calculated Ratios |
|
|
|
|
|
|
|
Economic farm surplus (or EBIT) |
35,055 |
18 |
5.35 |
|
88,164 |
44 |
13.50 |
Cash farm expenditure/GFR |
655 |
|
|
|
58% |
|
|
EFS/total farm capital |
1.25 |
|
|
|
2.7% |
|
|
EFS less interest & lease/equity |
-0.3% |
|
|
|
1.6% |
|
|
Interest+rent+lease/GFR |
11.3% |
|
|
|
11.0% |
|
|
EFS/GFR |
9.4% |
|
|
|
22.2% |
|
|
Economic farm surplus (EFS) is calculated as follows: Gross revenue + change in livestock value-farm working expenses-depreciation-wages of management Wages of management = 1% of opening total farm capital + $31,000 (to a maximum of $75,000) |
|||||||
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
Contact this person
