3 Northland Dairy
The Northland dairy farm
The model represents spring calving dairy herds north of Auckland city.
Production varies around 270 to 320 kilograms of milksolids per cow, and stocking rates around 2.0 to 2.3 cows per hectare. Surplus calves are sold at four days of age for slaughter (bobby calves) or for beef rearing. Grazing some of the heifer replacements and most of the cows off the farm during winter is common.
The model represents an established family partnership employing some casual labour. Equity is around 87 percent and interest payments absorb about 8 percent of gross farm revenue.
Table 3.1: Northland dairy model summary, 2005/06
| Effective area | 108 ha |
| Opening stock wintered | 319 hd |
| Milking cows | 250 hd |
| Replacement heifers | 66 hd |
Table 3.2: Key parameters of the Northland dairy model
| 2002/03 | 2003/04 | 2004/05 | 2005/06 | 2006/07f | |
|---|---|---|---|---|---|
| Effective area (ha) | 104 | 108 | 108 | 108 | 108 |
| Cows wintered | 227 | 235 | 242 | 250 | 254 |
| Cows milked at 15 December | 219 | 222 | 233 | 237 | 244 |
| Stocking rate (cows/ha) | 2.1 | 2.1 | 2.2 | 2.2 | 2.3 |
| Total milksolids (kg) | 65 755 | 60 495 | 63 520 | 64 790 | 66 750 |
| Milksolids/ha | 632 | 560 | 588 | 600 | 618 |
| kgMS/cow milked | 300 | 273 | 273 | 273 | 274 |
| MS advance to end June ($/kg) | 3.30 | 3.72 | 3.95 | 3.60 | 3.65 |
| MS deferred payment ($/kg) | 0.60 | 0.27 | 0.50 | 0.64 | 0.47 |
| Gross farm revenue ($) | 256 475 | 270 949 | 312 328 | 311 489 | 312 824 |
| Net trading profit ($) | 80 960 | 73 263 | 105 657 | 92 258 | 87 460 |
| Disposable surplus/deficit ($) | – 12 508 | – 6 457 | 12 544 | – 12 956 | 193 |
Symbol
f Forecast
Key points
- The 2005/06 season has been a testing one to farm through, resulting in just a very small increase in production.
- Gross revenue decreased slightly (less than 0.3 percent) compared with 2004/05, with revenue earned from milksolids production almost the same compared with 2004/05.
- Farmers are predicting only small changes to revenue or expense items relating to farm production for 2006/07, e.g. feed and repairs and maintenance.
- Very wet soils in May and June 2006 are a major concern to farmers, especially those on heavy clay or gumland soils.
Physical factors
Northland dairy farmers enjoyed a very good start to the 2005/06 season. Good conditions during June 2005 allowed pasture covers to improve dramatically from the extremely dry conditions of April and May 2005.
July and August 2005 were exceptionally dry, with many areas recording less than 50 percent of their normal rainfall, reducing the extensive pugging damage that normally occurs. Although pasture growth was restricted due to the very dry weather, milk production was at record levels through August and September. Pasture growth improved following rain in September 2005, but continued rain and cold conditions in October reduced both pasture covers and pasture utilisation with a negative impact on milk production. Dry conditions followed in late spring with the Far North area having its second driest November on record.
This difficult October and November coincided with mating: tough feed conditions at this time contributed to mating problems. In lower and mid-Northland empty rates were 5 percent to 6 percent above average, with many herds recording empty rates of 18 to 20 percent. On some farms, paddocks that had been shut for silage were grazed during October and November because of a shortage of feed. Grass silage was made late and with very high yields.
Weather conditions and pasture growth during January to March 2006 were very variable through Northland. Some areas such as Dargaville district had a very good summer, whereas the Far North experienced very dry conditions in mid-January and again in mid-March.
Facial eczema spore counts were low with very few clinical signs seen in dairy herds, although some young replacement stock were affected. There were very few other animal health issues through the season.
Autumn was a complete contrast to the exceptionally difficult 2005. This 2006 autumn saw a huge surge of pasture growth in April and early May due to good rain and warm temperatures. But the very good pasture covers in early May dropped very quickly by the end of the month as soils became saturated and difficult to manage. A carry-over advantage from this positive autumn is that cows are in far better condition than this time last year.
The area planted in maize for silage was down this year. Larger farms with maize silage as a key component of their feeding systems planted their normal area, whereas some smaller farms opted out of planting maize. A difficult October and November also contributed to a reduced area being planted. Palm kernel continued to increase in popularity as a feed supplement. It is seen as a relatively cheap source of energy and is easy to feed. If importers can hold the cost of Palm kernel the use of this supplement is expected to continue to expand.
Financial position of the farm
Review of 2005/06
Revenue
In June 2005 farmers were forecasting a decrease in gross farm revenue of $14,300 in the 2005/06 year.
The actual was $839 with the major contributor to this decrease being the $0.35 per kilogram of milksolids (9 percent) reduction in advance milksolids payment up to June 2006.
Cattle sales increased by $4,800 (15 percent) but did not balance the decrease in the advance milk payment.
Cow prices have been strong during the latter part of the season, with herds typically priced at $1,100 to $1,200 per cow. This is due to a shortage of dairy cows resulting from the high empty rates and fewer replacement heifers reared over the last few years, influenced in part by the exporting of live heifers through this period.
Expenditure
Cash farm expenses increased by 5 percent to around $184,000 ($2.84 per kilogram of milksolids). Significant costs were in feed, up 15 percent, and fuel, up 30 percent. The increase in these two items accounted for
80 percent of the increase in overall cash farm expenditure. Animal health, breeding, plus repairs and maintenance, showed very minimal increases in 2005/06.
Expenditure on fertiliser was down in 2005/06, by $2,200 (6.5 percent), which is the first decrease for a number of years. At $0.48 per kilogram of milksolids, this fertiliser input is still viewed as a strong, healthy application.
Across the survey farms there was a wide variation in total feed costs, from $0.09 per kilogram of milksolids to $1.28 per kilogram of milksolids (average $0.54 per kilogram of milksolids); and total farm working expenditure from $2.16 per kilogram of milksolids to $3.70 per kilogram of milksolids (average $2.84 per kilogram of milksolids).
Net result
Cash farm surplus shows a large decrease of $9,400 (8 percent) to $101,500. Net trading profit after taxation shows a very large decrease of $32,050 (34 percent) to $61,150. The major contributor to this decrease is the taxation payments in 2005/06 of $31,000, an increase of $18,600 for the model.
Personal drawings increased by $5,900 to $45,000. Expenditure on development and capital purchases decreased after previously being maintained at a high level. The fall in production from the record 2002/03 year has meant most farmers have not had to purchase additional dairy company shares, although the reserve shares that have been taken up were re-valued at the 2005 Fair Value share and Peak Note price. This has been incorporated into capital purchases.
A disposable cash deficit of $12,950 was the result for 2005/06. The model took on new borrowing for the first time which, together with off-farm income, resulted in a small positive net cash change of $7,050. This is approximately $10,000 more than was forecast.
Both new borrowing and off-farm income were important sources of cash on many dairy farms, with 40 percent and 60 percent of the survey farms undertaking new borrowing and off-farm income, respectively.
Forecasts for 2006/07
Revenue
Gross farm revenue in 2006/07 is projected to increase by $1,300 (0.4 percent) compared to the 2005/06 year. The 1960 kilograms of milksolids increase in production forecast by farmers drives the majority of this increase in gross farm revenue.
Expenditure
Cash farm expenditure for 2006/07 increases by just over 2 percent compared to the 2005/06 season. There is a small decrease in expenditure on a per kilogram of milksolids basis to $2.82. Farmers were anticipating nil or just small changes in most items. Most notable are increases in electricity (up 6 percent), fertiliser (up 8.5 percent) and fuel (up 8 percent), and a decrease in repairs and maintenance of $1,000 (down 6.5 percent).
Net result
Cash farm surplus decreases slightly by $3,800 (3.8 percent). The small increase in gross farm revenue from the improved production does not compensate for the increase in cash farm expenditure. A major reduction in taxation to pay in 2006/07 is reflected in the 18 percent increase in net trading profit after taxation.
Development is expected to drop by half, to $3,050. This, in part, reflects the large amount of development carried out over the previous five years. The reserve shares held from the 2002/03 season again mean that no additional shares are required to be purchased. The reserve shares used have been re-valued at the expected 2006 Fair Value share and Peak Note price, and added to capital purchases.
The model ends up with a disposable surplus of $190. Off-farm earnings of $8,000 maintain their importance but continue to decrease. Other cash income for 2006/07 of $12,522 is the rebate calculated from Fonterra’s capital restructuring – which is a one-off payment. This rebate and the reduced taxation bill make a significant contribution to the forecast result for 2006/07 of a net cash surplus of $20,715.
Figure 3.1: Northland dairy profitability trends
Issues and trends
The continuing wet mid-autumn weather, which has extended into early winter, is becoming an increasing concern for farmers on clay soils. If the high rainfall continues, farmers are worried about the high potential for severe pugging damage to their soils and pastures. There is also a concern that additional supplementary feed may need to be purchased.
The wet soils have meant that some farmers did not apply autumn fertiliser, nor were they able to sow seed after maize crops were harvested.
Even though only 2 to 3 percent of farmers are adopting once-a-day milking, there is an increasing trend to do so. These farmers state that, for them, the advantages from once-a-day milking outweigh the disadvantage of a reduction in milk production. Advantages are primarily the substantial improvement in the number of cows getting back into calf, plus the social advantages of not being tied to twice-a-day milking. Many farmers have commented that by adopting once-a-day milking they will continue actively farming for another 10 years, which would not have been the case if they remained with twice-a-day milking.
Labour issues continue to be of concern for the industry. There appears to be an increasing number of farm staff unhappy with their working conditions, particularly from calving up to the end of mating. Farmers are beginning to appreciate that they have to be more flexible with regard to time off for their staff. This is seen as one of many factors required to entice and retain committed and interested staff.
Increasing land price and farm size, especially with recent conversions, are seen as stumbling blocks within the industry. While the dairy industry and sharemilking are viewed positively, the resources required to progress are considerably larger than ever before. Good sharemilking jobs are hard to find in Northland and there are limited positions that have good scale of operation. Family relationships still form a large portion of 50/50 sharemilking jobs throughout Northland.
The number of farms supplying Fonterra in Northland continues to decline, although the decline may be slowing. An estimated 95 suppliers ceased supplying at the end of the 2004/05 season, with a further 60 farms having ceased supply at the close of the 2005/06 season. While some of these farms are subdivided into lifestyle blocks, or amalgamated with a neighbouring dairy farm, the great majority convert into beef farming. There is some concern that many of these new beef farmers do not appreciate how low their financial income will be from beef farming compared to what it had been from dairy farming. On the back of this decreasing number of suppliers, cow numbers have decreased over the last two years, but total milk production has shown slight increases.
Northland dairy farmers are looking forward to further small increases in production and improvements in financial returns. There is an expectation by many farmers that the payout in 2006/07 will be higher than the $4.05 per kilogram of milksolids announced by Fonterra. The mood amongst dairy farmers is very variable in terms of their perception of the dairy industry. Large-scale farms that have been actively growing their business are in a buoyant mood and still see strong opportunities to further improve their capital value over the next 6 to 24 months. By comparison, smaller-scale farms have very limited opportunities to grow their business and are less optimistic.
Fertiliser use is expected to show a slight decrease by some farmers. In some cases nutrient budgeting has enabled farmers to reassess their fertiliser policies and reduce inputs. Nutrient budgeting, at a time of high overdraft levels, has given these farmers confidence that their production will not suffer by reducing or even missing out this autumn’s fertiliser application.
Table 3.3: Northland Dairy Budget
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm | Per cow | Per kgms | Whole farm | Per cow | Per kgms | |
| ($) | ($) | ($) | ($) | ($) | ($) | |
| Revenue | ||||||
| Milksolids | 273 897 | 1 156 | 4.23 | 274 089 | 1 123 | 4.11 |
| Cattle | 37 292 | 157 | 0.58 | 39 135 | 160 | 0.59 |
| Other farm income | 1 500 | 6 | 0.02 | 800 | 3 | 0.01 |
| Less | ||||||
| Cattle purchases | 1 200 | 5 | 0.02 | 1 200 | 5 | 0.02 |
| Gross farm revenue | 311 489 | 1 314 | 4.81 | 312 824 | 1 282 | 4.69 |
| Cash farm expenditure | 183 754 | 775 | 2.84 | 188 416 | 772 | 2.82 |
| Interest | 26 200 | 111 | 0.40 | 26 742 | 110 | 0.40 |
| Rent and/or leases | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Cash farm surplus | 101 535 | 428 | 1.57 | 97 666 | 400 | 1.46 |
| Stock value adjustment | 4 448 | 19 | 0.07 | 3 411 | 14 | 0.05 |
| Minus depreciation | 13 725 | 58 | 0.21 | 13 616 | 56 | 0.20 |
| Net trading profit | 92 258 | 389 | 1.42 | 87 460 | 358 | 1.31 |
| Taxation | 31 105 | 131 | 0.48 | 15 542 | 64 | 0.23 |
| Net trading profit after tax | 61 153 | 258 | 0.94 | 71 918 | 295 | 1.08 |
| Allocation of funds | ||||||
| Add back depreciation | 13 725 | 58 | 0.21 | 13 616 | 56 | 0.20 |
| Reverse stock value | – 4 448 | – 19 | – 0.07 | – 3 411 | – 14 | – 0.05 |
| adjustment | ||||||
| Drawings | 45 400 | 192 | 0.70 | 46 000 | 189 | 0.69 |
| Principal repayments | 13 300 | 56 | 0.21 | 15 581 | 64 | 0.23 |
| Development | 7 300 | 31 | 0.11 | 3 050 | 13 | 0.05 |
| Capital purchases | 17 386 | 73 | 0.27 | 17 299 | 71 | 0.26 |
| Disposable surplus/deficit | ||||||
| Other cash sources | ||||||
| New borrowing | 10 000 | 42 | 0.15 | 0 | 0 | 0.00 |
| Off-farm income | 10 000 | 42 | 0.15 | 8 000 | 33 | 0.12 |
| Other cash income | 0 | 0 | 0.00 | 12 522 | 51 | 0.19 |
| Net cash change | 7 044 | 30 | 0.11 | 20 715 | 85 | 0.31 |
| Assets and liabilities | ||||||
| Farm, forest and building (opening) | 1 644 543 | 6 939 | 25.38 | 1 743 215 | 7 144 | 26.12 |
| Plant and machinery (opening) | 91 500 | 386 | 1.41 | 90 775 | 372 | 1.36 |
| Stock valuation (opening) | 328 520 | 1 386 | 5.07 | 332 968 | 1 365 | 4.99 |
| Dairy company shares | 420 174 | 1 773 | 6.49 | 431 353 | 1 768 | 6.46 |
| Total farm capital | 2 484 737 | 10 484 | 38.35 | 2 598 311 | 10 649 | 38.93 |
| Total debt opening | 300 000 | 1 266 | 4.63 | 306 380 | 1 256 | 4.59 |
| Equity | 2 184 737 | 9 218 | 33.72 | 2 291 931 | 9 393 | 34.34 |
Symbol
f Forecast
Table 3.4: Northland Dairy Expenditure
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm | Per cow | Per kgMS | Whole farm | Per cow | Per kgMS | |
| ($) | ($) | ($) | ($) | ($) | ($) | |
| Farm Working Expenses | ||||||
| Permanent wages | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Casual wages | 9 000 | 38 | 0.14 | 9 400 | 39 | 0.14 |
| ACC | 4 903 | 21 | 0.08 | 4 982 | 20 | 0.07 |
| Animal health | 13 983 | 59 | 0.22 | 14 152 | 58 | 0.21 |
| Breeding | 7 110 | 30 | 0.11 | 7 320 | 30 | 0.11 |
| Dairy shed expenses | 5 925 | 25 | 0.09 | 5 856 | 24 | 0.09 |
| Electricity | 7 821 | 33 | 0.12 | 8 296 | 34 | 0.12 |
| Feed (hay and silage) | 9 006 | 38 | 0.14 | 8 540 | 35 | 0.13 |
| Feed (feed crops) | 6 162 | 26 | 0.10 | 6 344 | 26 | 0.10 |
| Feed (grazing) | 10 902 | 46 | 0.17 | 10 980 | 45 | 0.16 |
| Feed (other) | 8 295 | 35 | 0.13 | 8 052 | 33 | 0.12 |
| Fertiliser | 31 019 | 131 | 0.48 | 33 623 | 138 | 0.50 |
| Lime | 2 320 | 10 | 0.04 | 2 520 | 10 | 0.04 |
| Freight (not elsewhere deducted) | 1 422 | 6 | 0.02 | 1 464 | 6 | 0.02 |
| Re-grassing costs | 1 659 | 7 | 0.03 | 1 647 | 7 | 0.02 |
| Weed and pest control | 3 437 | 15 | 0.05 | 3 172 | 13 | 0.05 |
| Fuel | 9 243 | 39 | 0.14 | 10 004 | 41 | 0.15 |
| Vehicle costs (excluding fuel) | 10 428 | 44 | 0.16 | 9 760 | 40 | 0.15 |
| Repairs and maintenance | 15 642 | 66 | 0.24 | 14 640 | 60 | 0.22 |
| Communication costs (phone and mail) | 2 252 | 10 | 0.03 | 2 489 | 10 | 0.04 |
| Accountancy | 3 081 | 13 | 0.05 | 3 172 | 13 | 0.05 |
| Legal and consultancy | 1 825 | 8 | 0.03 | 1 708 | 7 | 0.03 |
| Other administration | 1 900 | 8 | 0.03 | 1 800 | 7 | 0.03 |
| Water charges (irrigation) | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Rates | 4 906 | 21 | 0.08 | 5 295 | 22 | 0.08 |
| Insurance | 4 811 | 20 | 0.07 | 4 831 | 20 | 0.07 |
| Other expenditure | 6 703 | 28 | 0.10 | 8 370 | 34 | 0.13 |
| Cash farm expenditure | 183 754 | 775 | 2.84 | 188 416 | 772 | 2.82 |
| Calculated ratios | ||||||
| Economic farm surplus (EFS) | 55 611 | 235 | 0.86 | 50 220 | 206 | 0.75 |
| Cash farm expenditure/GFR | 59% | 60% | ||||
| EFS/total farm capital | 2.2% | 1.9% | ||||
| EFS less interest and lease/equity | 1.3% | 1.0% | ||||
| Interest+rent+lease/GFR | 8.4% | 8.5% | ||||
| EFS/GFR | 17.9% | 16.1% |
Notes
1 EFS (or Earnings before interest and tax) is calculated
as follows: gross farm revenue plus change in livestock values less working
expenses less depreciation less wages of management (WOM). WOM are calculated as
follows: $38,000 allowance for labour input plus 1 percent of total capital as
managerial reward. An upper limit for WOM of $75,000 has been set.
2 Gross farm revenue.
Symbol
f Forecast
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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