Over several years Manawatu dairy farmers, Bryan and Jo Guy, have re-structured the way they run their dairy farm, focusing more on business management while handing over the day-to-day operations to their daughter Anna and her husband Ewen Macdonald, with assistance from another three full time employees.
This strategy has sharpened Bryan’s business focus, and his ability to consider production and financial aspects together.
“In the past it’s been easy to get advice on either production or financial issues, but the success of our dairying business relies on putting them both together. The big improvements came when we developed the skills and found the software to do this,” said Bryan.
These days Bryan talks about ‘profitable changes’, rather than maximising production, although he still closely monitors production per ha.
About five years ago the Guy’s milked 500 cows and replacement stock on 275ha, with what they describe as a ‘low supplement’ system – about 90 per cent of the herd’s diet came from pasture and the rest from purchased supplements.
“We’d plateaued at about 1400 kg milksolids/ha and couldn’t see how we could get much higher from a pasture-based system.”
Historically the Guys had a winter contract and this was only about five years after its removal so there was continued downward pressure on premiums paid for that milk.
“We no longer had the buffer of high winter premiums to cover extra costs. If we started feeding more supplements, it had to be a profitable investment,” he said.
But the challenge Bryan faced was working out if it would be profitable or not. “It was pretty easy to work out the direct costs of feeding more supplements, but I also wanted to consider the indirect ones such as feed wastage, additional labour and the capital cost of feeding equipment. I did a lot of analysis but struggled to come up with any meaningful indicators,” said Bryan.
The first step in the turnaround was joining a financial discussion group. Unlike most discussion groups, this one involved eight dairy farmers from a wide geographical area, and they were all people who had specifically sought out a forum to improve their skills in financial analysis. ‘It’s a very sensitive issue, but we all recognised we needed open discussion to learn from each other,” said Bryan.
The group worked with dairy consultant David Beca to collect production and financial data from each farm. This was analysed through a computer, so that each member could look at the performance of their own farm, and compare with that of the rest of the group. “These reports gave us the ability to look at why one management approach might be performing better than another, from a business perspective,” he said.
The discussion group, and the software it used, gave Bryan the financial skills and resources he needed to assess options for change – not just their feasibility, but also their profitability.
“That was really the start of a new approach for us, because at last I had the confidence to assess major changes. It was the first time I’d been happy that we were looking at the true costs of our production system,” he said.
A surprise for many in the group was the true cost of growing pasture. “By the time you account for the cost of seed, fertiliser and the opportunity cost of owning the land, it is much higher than I’d expected. Today at $190/tonne DM, it is still our cheapest feed source,” said Bryan.
One of the first changes the Guys implemented was to gradually increase the level of supplements fed, which allowed them to expand the herd size. They increased supplements from 10 to 30 per cent of the herd’s diet and now milk 620 cows and replacements off the same land area.
“The analysis confirmed it would be profitable to increase our level of supplementation, because it would allow us to better utilise our pasture, labour and capital investments.”
Although he is still a member of the financial discussion group, Bryan now has the skills to do his own business analysis, using Red Sky software. This has given him the freedom to review the business each time the family is considering changes, and also when there’s a need to adjust to changing circumstances.
“Red Sky is a unique tool because it allows us to examine the production and financial aspects of our business together,” said Bryan.
And he’s been hard at it recently, looking at how the business can grow, given the current environment of low milk prices. Bryan has carefully examined costs, hunting for sustainable savings, especially in the area of feed inputs.
He’s been comparing the real cost of feed options – purchased grain and mineral premixes, versus purchased or home-grown maize silage. “Our analysis shows that the best feed option is very price sensitive, so I’ll probably re-do the sums again, say if grain prices drop.” Other costs such as animal health have also been looked at closely.
“Five years ago I’d never have had the ability or the confidence to do this sort of analysis. The discussion group made a big difference, but now that I can use Red Sky software independently of the group I can look at the efficiency of our own business whenever I like,” he said.
One of the things Bryan likes best about Red Sky is the ability to look at true costs rather than just direct costs. He also likes the ability to compare his business with other dairying businesses.
“Red Sky allows us choose who we compare our system with – for example, the top 10% of Waikato dairy farms, or the NZ average, or a variety of others.”
He also finds it useful to standardise some of the figures, so he knows he’s comparing apples with apples. For example standardising staff hours can give a more meaningful figure on the number of cows a staff member can manage. “Sure one person can look after 250 cows/week, if they work 80 hours a week, but that figure isn’t very realistic. By standardising it at 50 hours/week I can get a better idea of how many employees we’d need, if say we were looking at expanding herd size,” he said.
While Bryan isn’t happy about the recent falls in milk prices, at least he feels he has the skills to manage the business in both challenging and buoyant times.
The announcement of a joint venture between Fonterra and Red Sky to promote the widest possible use of Red Sky Farm Performance Analysis in New Zealand has provided added confidence that the program should develop into a national database from which all dairy farmers would benefit.”