Manawatu/Rangitikei Intensive

Model Description

This model is situated on flat to easy rolling country in the Manawatu and Rangitikei districts. The model farm is 393 effective hectares (ha), 303 owned and 90 leased. The annual rental on the lease block is $36,000 ($400/ha).

The core activity on the model farm is lamb and cattle finishing, but includes a 1500 ewe flock. Some contract grazing of stock for other farmers also occurs, in the form of 570 lambs for 11 weeks and 170 dairy heifers for 50 weeks.

Lambs, steers and young bulls are purchased for finishing, mostly over autumn and winter.

Table 1: The Model in Summary 2003/04

Effective area:	393 ha	Total stock units wintered:	5,657 su
Opening stock wintered:		Breeding cows	0 hd
Breeding ewes	1,500 hd	R1yr cattle	176 hd
Replacement ewe hoggets	500 hd	R2yr cattle	316 hd
Other sheep	920 hd	Other cattle	0 hd

Table 2: Key Parameters

	2000/01	2001/02	2002/03	2003/04	2004/05f
Effective area (ha)	346	393	393	393	393
Opening sheep stock units	2,580	2,765	3,089	2,496	2,566
Opening cattle stock units	2,508	1,820	1,900	2,284	2,305
Opening total stock units	5,088	4,585	4,989	4,780	4,871
Stocking rate (su/ha)	14.7	11.7	12.7	12.16	12.39
Ewe lambing %	132	134	129	122	128
Average lamb price ($/hd)	74	83	69	69	69
Average wool price ($/kg)	2.63	3.03	3.07	2.78	2.74
Total wool produced (kg)	12,794	15,760	14,832	14,822	13,820
Wool production (kg/ssu)	5.0	5.7	5.3	5.9	5.4
Average 30-month bull ($/hd)	1,162	1,410	908	996	944
Gross farm revenue ($)	430,409	397,111	408,165	449,552	444,078
Cash farm surplus ($)	218,540	93,987	110,929	132,957	119,293
Net trading profit ($)	155,047	108,248	70,717	114,152	125,928

Key Points

Flooding in February 2004 caused business disruption and additional repairs and maintenance costs, but not the degree of stock or pasture loss at first feared. Very mild conditions in April and May resulted in good pasture growth rates, and farmers did not have to send stock off for grazing.
Crops suffered significant damage, with many farmers commenting that poor yields barely covered expenses.
Farmers are relieved by the depreciating New Zealand dollar (NZD) and the corresponding lift in product prices, especially during May 2004.
Stock prices throughout the year were better than predicted in most farmer budgets.

Physical Factors

A dry autumn in 2003 reduced feed covers and lowered conception rates in ewes and hoggets. However, the average lambing percentage of 124% pleasantly surprised many farmers.

A cold spring followed, restricting lamb and cattle growth rates. However, from December until the flooding event of 15/16 February, good pasture growth rates occurred.

In this model, flood damage did not affect stock production, but additional repair costs were incurred.

Farmers believe that the full psychological impact of the flood is yet to be felt. Farms are very exposed to the effects of any further heavy rain, as riverbanks are damaged and little repair work has been undertaken. Many large logs in stream beds could inflict further damage, particularly to bridges.

During the floods mobs and herds became mixed, resulting in unplanned early ewe pregnancies. Later, good pasture management was not possible with so many fences down. High winds 2 days later brought down trees, but pasture feed supplies and stock prices held up well, which helped restore farmer morale.

Competition for finishing stock was intense with more and more farmers moving to trading stock only farming systems. Those who held on to stock into May and June benefited from a significant lift in late season schedule prices.

Many cash crops were destroyed or did not warrant harvesting following the February floods. This has further discouraged cropping as seasons have been poor over the last 3 years.

Farmers trading large numbers of lambs did well as margins improved throughout the autumn and early winter.

Some farmers lost stock to Salmonella as outbreaks occurred around Wanganui and Hunterville. Those affected are now vaccinating against further outbreaks.

Nitrogen use is increasing, with heavier rates and more frequent applications.

Financial Factors

2003/04 Review

Revenue

Gross farm revenue (net of livestock purchases) increased from $408,165 to $449,552 in 2003/04. This is significantly better than forecast, mostly attributable to high stock schedules.

However, at times during the year, margins for both lambs and cattle were squeezed as the East Coast had a good summer and farmers were able to finish a lot of their own stock.

Some traders were able to take advantage of cheap store lambs from the South Island, which reduced lamb purchase prices, typically by $10/hd.

There is a trend towards finishing sheep rather than cattle, resulting in a reduction in the capital value of stock.

Net proceeds from the 16 ha of crop in this model amounted to only $1,440 in total, due to flood damage occurring very close to harvest.

Stock losses from the floods were not significant.

Table 3: Stock Values for Forecast for Trading Stock (average of 20 surveyed farms)

	Buy Price $	Sell Price $	Margin $
Bought-in lambs	56.60	69.20	12.60
R1yr steers	490	856	366
R2yr steers	820	1,010	190
R1yr bulls	295	770	475
R2yr bulls	630	996	366

Table 4: Cash Farm Revenue ($)

	Actual 2001/02	Actual 2002/03	Estimate 2003/04	Forecast 2004/05
Sheep sales less purchases	168,227	171,388	182,732	164,931
Cattle sales less purchases	154,303	164,250	166,905	176921
Wool	47,753	45,534	41,205	37867
Other income	26,828	8,150	58,710	64,360
Gross farm revenue	397,111	408,165	449,552	444,078

Expenditure

Total cash farm expenditure increased in 2003/04 by 14% on the previous year. This reflected higher spending on animal health, electricity, feed, freight, seeds, rates, and repairs and maintenance.

Some increase in labour and repairs and maintenance costs was a direct result of flooding clean-up.

Many farmers are deferring expenditure on fertiliser as the autumn was especially mild and feed levels are abundant. There is a trend towards stretching out regrassing schedules to avoid the high cash cost.

The Rangitikei area has experienced a 70% increase in rateable values in the last 3 years. Many farmers are disputing these new valuations, but they seem well justified based on recent market sales.

Telecommunication costs are escalating as farmers make more use of the services.

Debt servicing costs have increased, and are expected to continue to go up as the Reserve Bank moves to curb inflation.

Farmers are spending more on stock handling facilities as some good options for efficient handling of stock, especially sheep, are now available.

Net Result

The cash farm surplus moved from $111,354 to $132,957 reflecting higher gross revenue. Cash farm expenditure was also up, but not as much.

The net trading profit before tax increased from $71,142 to $114,152, and is better than the forecast figure. Higher than anticipated stock values are the main reason.

Manawatu/Rangitikei Intensive Profitability Trends

2004/05 Forecast

Revenue

Gross farm revenue is expected to remain very near to 2003/04 levels. A small decline from $449,552 to $444,078 is expected. Interestingly, farmers expect less for wool despite the recent fall in the NZD. More and more farmers are moving to trading and are carrying fewer breeding stock, so margins may be under pressure. However, with a high lambing percentage predicted for this spring, more lambs should be available.

Table 5: Stock Values for Forecast for Trading Stock (average of 20 surveyed farms)

	Buy Price $	Sell Price $	Margin $
Bought-in lambs	55.30	68.60	13.30
R1yr steers	560	923	363
R2yr steers	741	1,026	285
R1yr bulls	324	839	515
R2yr bulls	494	944	450

Expenditure

Cost increases are forecast for labour, animal health, fuel, freight, rates and shearing. This will be offset by reduced spending on fertiliser (despite price rises) and feed. Overall cash farm expenditure is predicted to increase for the model by $6,000, or $17/ha.

Net Result

As noted above the gross revenue is lower and cash farm expenditure is higher, leading to a fall in the cash farm surplus from $132,957 to $119,293.

Net trading profit before tax is expected to rise from $114,152 to $125,928, mainly as a result of a large increase in livestock valuation.

Drawings are expected to increase by $1,000 to offset inflation, development expenditure to decrease from $7,467 to $3,537, and capital purchases to reduce from $41,208 to $18,000.

Issues and Trends

As the model is largely a sheep and beef finishing operation, it was not as badly affected by the 15/16 February floods as were cropping farmers and sharemilkers. There is great uncertainty about who will pay for river repairs, and by when. Many farmers feel very exposed to any further downpours. On the model farm there was no forced destocking, but certainly normal farm management was disrupted. Controlling feed and pastures has been difficult and in some areas access is still difficult, especially to airstrips.

Favourable grass growing conditions since the flood have helped to offset any silted pastures.

Despite the floods, land prices have moved up sharply. Most sales have been to existing farmers, but now it is difficult to show a competitive return or grow the business when returns on capital are typically 2-3%.

Surveyed farmers are getting older and the price of land is making it more and more difficult for younger people to set up their own farming business.

Surveyed farmers in the model live close to urban centres, and are becoming increasingly wary of those clutching clipboards administering regulations regarding building codes, effluent disposal, fencing off of waterways, stock on roads, fertiliser and chemical application. Farmers say these are all costs without benefit, which will lead to New Zealand becoming less competitive.

Farmers are using helicopters more for fertiliser topdressing. Placement is more accurate and many older airstrips are being banned from use by Civil Aviation. Farmers are concerned that half the airstrips could be closed down.

Farmers are critical of the Land Transport Authority, claiming they are too draconian with their rulings and their staff are not well trained.

The HSNO Act looms, and farmers say that this will impose yet more costs on their farming operation.

Animal health compliance annoys some farmers. For instance, penicillin is now not able to be purchased and used to assist ewes after difficult births.

Many farmers have had enough of bulls. They believe they are not getting paid for the additional management difficulties, and are buying steers instead. However, there is still some demand for Techno systems.

The establishment of the new Canterbury Meat Packers plant at Marton will lead to even more competition for lambs.

Some Salmonella was experienced around Wanganui and Hunterville.

McCains are pulling out of pea processing in the Manawatu, restricting farmer crop choices.

Inland Revenue is focusing more on farming, with more audits and careful examination of qualifying repairs and maintenance costs. A review of depreciation rates is also occurring, which may result in lower rates for farm homes and buildings.

Farmers are restructuring their farm ownership to spread tax.

The high price of land is making farm succession as difficult as ever.

Consultants are advising farmers to use ACC Cover Plus policy.

Slow Internet connection speeds and poor cell phone coverage continue to frustrate farmers.