Articles

Planning the Way Forward (New Zealand)


PLANNING THE WAY FORWARD

FarmLink, July 2004

Neville & Louise Williams have farmed with various farm systems over the years and when they expanded their farm business recently they knew they had to look in depth at their performance.  With the news of lower milk prices on the horizon they believed it would be important to maintain a lower level of risk in their business but they were keen to maintain a good level of profit.

“In the past we would have sat down with our consultant and worked out what we thought would be the best result.  We would have looked closely at how we could wind up the physical farm performance but we would not have been so clear about the financial result.”

Neville thought that having purchased some additional land, that extra cows should probably be run to maintain stocking rate.  But before making a decision they sat down with their consultant and completed a more comprehensive farm performance analysis using Red Sky.

“We were really quite surprised with the results.  Firstly Red Sky allowed us to easily remove the effects of high or low milk prices as well as any other unusual expenses.  This reassured us that we had a strong underlying business.  It gave us a lot of confidence knowing how we were performing compared to other farmers.”
However the really valuable outcome was the ability to separate out the likely profit from running different systems, and then balance this with the potential risk.

“Once Warren had helped us calculate the potential risk with altering our farm system it was clear to us that maintaining a more moderate stocking rate would be best in the short term.”

The outcome has been that the Williams have chosen to stick with around 260 cows on their 83 hectares.  The cows are producing around 400 kgs milksolids per year so on farm productivity is good.

“When we look back we wish we had Red Sky available to us earlier as it made it easy to make what in the past had been difficult decisions.  As we head into a period of lower payout we are confident that we have the right mix for these times.  We also feel confident that when conditions improve we can quickly re-evaluate the situation and make further changes if necessary.”


Red Sky has recently completed the development of an import function in partnership with the major software providers to accountants.  This means that it is now quicker, easier and more cost-effective for most farm accountants to transfer your data into Red Sky (i.e. you can receive benchmark reports without having to manually enter the data).

All users of Red Sky can maintain privacy with their personal data, although everyone's data is then combined to produce industry benchmarks that are freely available.  The Red Sky database surpassed 300 New Zealand dairy farms in early July and these benchmarks will be updated regularly so that the information is produced in real time. Now that this direct import functionality is available you should ask your accountant for access to this service.

The following table of 2002/03 Red Sky Benchmarks are all calculated at a $3.85/kgMS payout.  There is a considerable bias in the figures due to the smaller number of businesses that have supplied a significant proportion of the data plus the influence of the Fonterra Dairy Excellence Awards participants (who all had their farm performance entered into Red Sky).

KEY PERFORMANCE INDICATORS

Average

Top 25%

Top 10%

Return on Assets (at rolling average values)

4.1 %

8.0 %

8.6 %

Operating Profit per Hectare

$ 1,137

$ 2,256

$ 2,443

Pasture Harvest per Hectare (tDM/ha)

11.7

13.3

14.1

Operating Profit Margin

22.6 %

36.1 %

39.6 %

Comparative Cost of Production/kg Milksolids*

$ 2.85

$ 2.25

$ 2.09

Pasture as % of Total Consumed

80.1 %

76.4 %

81.0 %

Equity Percentage (at market values)

53.5 %

45.5 %

44.5 %

Milksolids per Hectare

1,140

1,408

1,390

Stocking Rate

3.12

3.50

3.54

Milksolids per Cow

365

402

392

Cows per (50 Hour) Full Time Staff Equivalent

110

134

144

      * this is equivalent to Total Operating Expenses plus Adjustments less Non-Milk Revenue per kgMS

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