Budgeting, High Input System (South Waikato)
16 min read
The success of this 73 ha, 290 cow, high input farm near Putaruru depends on skilled labour and the ability to evaluate and negotiate feed options. Focus on minimising waste, efficient resource use and strong financial management means this business is consistently in the top 10% for operating profit per ha for South Waikato Owners.
This high input, highly stocked farm, depends on effective feed monitoring, efficient effluent management and improving herd fertility for success.
Achieving success with a high input system requires skilled labour and an ability to evaluate and negotiate feed options. A contract milker is employed and the budget has been prepared showing the payment to the contract milker as wages paid, with all costs being the owners share only. The contract milker pays for labour, shed, power, and farm bikes.
The budget for 2023-24 is based on a net dairy Cash income of $8.52 which is $0.65/kgMS, (7%), lower than last seasons budget. This new seasons budget does shows a decrease in farm working expenses of about $0.32/kg MS, or 6%, on last season, largely due to a drop in feed prices. Ensuring all resources are still being used efficiently will again be key to maintaining a high level of profitability for this coming season.
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Business type:
Owner with contract milker
Location:
Near Putaruru, South Waikato
Farm size:
73ha effective milking platform, no support block
Peak cows:
290 FFX
PSC:
08/07/2023 MA cows (01/07/2023 R 2 heifers)
Stocking rate:
3.97 cows/ha
Farm System:
5 (> 31% imported feed)
Production:
134,900 kgMS/year, 1,848 kgMS/ha 465kgMS/cow
Production (last 3 years):
131,336 kgMS average
Financial KPI 2023-24 budget | |||
Net dairy cash income ($/kgMS) |
Total farm working expenses ($/kgMS) |
Total operating expenses ($/kgMS) |
Dairy operating profit ($/ha) |
$8.52 | $5.11 | $5.62 | $5,347 |
Physical KPI 2022-23 est | |||
Pasture and crop harvested (t DM/ha) |
Purchased N surplus (kg N/ha/yr) |
GHG (t CO2 equiv/ha/yr) |
Six week in-calf rate (%) |
14.9 | 194 | 12 | 70 |
Find out more about these KPI's and how to calculate them for your own farm here.
Numbers at a glance
2023-24 mid-season update as of 16th February 2024.
View/download PDF of updated budget
Financial KPI's | Budget | Updated forecast |
Milk Production (kgMS/ha) | 1,848 | 1,740 |
Milk Production (kgMS/cow) | 465 | 438 |
Net Dairy Cash Income ($/kgMS) | $8.52 | $8.80 |
Total Farm Working Expenses ($/kgMS) | $5.11 | $5.61 |
Cash Operating Surplus/Deficit ($/kgMS) | $3.41 | $3.19 |
Gross Farm Revenue ($/kgMS) | $8.51 | $8.79 |
Operating Expenses ($/kgMS) | $5.62 | $6.21 |
Operating Profit ($/ha) | $5,347 | $4,499 |
Comments and points of interest
Key points
• Milk production for the season is similar to last season but is 6% behind budget.
• Lower BCS than target at calving has impacted early season production.
• Additional winter grazing was purchased to reduce the winter stocking rate in an effort to increase pasture cover by calving.
• Daily production is currently similar to last season.
• Farm working expenses are forecast to be up $0.50/kgMS with half of this increase due to increased feed and winter grazing costs.
Comments
Production to date is 94,808 kg MS which is similar to the same time last season but is 6% behind budget. Peak cows milked is 290 which is on budget with losses for the season low at only 2. The herd peaked at 2.00 kgMS/cow/day for 11 days, in late September/early October.
With hindsight the herd was probably milked for about 5 days too long last season, which reduced supplements carried into the winter and impacted pasture cover at the end of May 2023.
Winter grazing for 25 cows for 2 months was secured to help reduce feed demand on the farm over the winter, so that pasture cover could be increased more quickly. With cover still behind target as calving approached, feeding levels for the cows were restricted. This meant that they were not on a rising plane of nutrition and cow body condition score was lower than target at the start of calving.
This compromise has had some impact on milk production in the early part of the season and reproductive performance.
The calving rate for the first 3 weeks was slower than last season so fewer days in milk has also contributed to some of the lower milksolids to date.
Supplements fed to date include 228t PKE, (205 tDM), and 240 tDM maize silage from inventory). This equates to 3445.4 t DM which is up on last season to the same time.
The amount of supplements made on farm this year was 12 ha of silage, (30 t DM). This is nearly double last season when only 16 t DM was harvest. There were better harvest windows for making supplement and though the peak growth was a little later there was a good surplus.
With the forecast for a dry summer the approach to dropping out paddocks was a bit conservative. Again with hindsight there probably could have been a bit more supplement made and this has also impacted pasture quality in late spring which affected milk production.
In addition to this, 21 tDM of standing pasture for silage was imported. This was not included in the budget so harvesting costs are well up on budget.
Rainfall for the last 2-3 weeks has been below average and recent day time temperatures have been very hot, (above 25degrees C). This is starting to impact the herd.
Fertiliser and nitrogen applications are as per budget with all spring fertiliser on and 3 application of N made for the season to date. Nitrogen applied to date is 85 kgN/ha.
Forecast milk production has been revised down 6% to 126,995 kg MS. The revised budget has milk income 3% down on budget. The better than expected Fonterra dividend has helped to offset some of the drop in income due to the lower milksolids forecast.
Total farm working expenses for the season are on track to be about 3% higher than budgeted. However with 6.0% less production FWE will be up about 10% or about $0.50c/kg MS. Half of this increase is due to additional feed or grazing purchased.
Current situation
There are currently still 290 cows on farm, (milking twice a day), which is 3.87cows per hectare. The herd is producing 1.32 kg MS/cow/day from 16 kg DM/cow/day. Feed is made up of 2.0 kg DM maize silage, 3.0 kg DM PKE and 11 kg DM from pasture.
Average daily total production for February is similar to last season, but daily per cow production is 2.0% down on last season.
Pasture cover is currently 2,150 kg DM/ha, and with estimated growth rates of 35-40 kg DM/ha/day, and daily pasture demand of 44kgdm/cow/day cover is dropping slightly. The rotation length is currently 30 days.
The amount of supplements will be increased as pasture growth rates slow but levels will be monitored to ensure grazing residuals do not increase.
The hot dry weather is starting to have an impact on pasture growth rates.
Looking forward
This is still about 777 kg DM/cow or 7.3 kgDM/cow/day of supplements available to feed to the end of May.
This is made up of 51 tDM of grass silage, 85 tDM PKE, (94 wet still on contract for the rest of the season), 35 tDM of maize from maize still on hand from last season plus at least 55 t DM maize from maize silage to be purchased in mid-March. This will still leave a minimum of 260 t DM of maize to carry through to the next season.
Although the budget includes the purchase of 315 tDM of Maize silage, it is likely that more will be available as the crop yields are looking good and a bit more area was planted by the grower, which is available for purchase. If the summer and autumn continues to be hot and dry, additional maize silage will ensure that there will be enough to use this season and still take sufficient though to next spring. The cost was in the budget at $458/ tDM but it is now more likely to be about $360/tDM.
One more application of PhaSed N at 30 kg N/ha will be applied in the autumn so N use for the year will be on budget at about 115 kg N /ha.
With the level of supplement on hand, the plan is still to milk the majority of the 290 cows through to mid-May.
The rising 3 year olds will go to once a day milking late March/early April, and the herd will be dried off in late May as per usual practice.
The lower cow condition at calving and the extra feed required over the winter to achieve pasture cover targets at calving has led to a revision of late season management. Production at the end of the season is very expensive in terms of feed used. Therefore drying off this year will likely be mid-May rather than late May.
Frequent monitoring and updating of pasture growth rates and feed on hand will be carried out to ensure feed budgets are on track so that end of season targets for pasture cover and cow body condition score will not be compromised this year.
Calving and reproduction
• The calving rate for 2023-24 was 62% of the herd calved in 3 weeks, 87% in 6 weeks and 99% in 9 weeks. This is behind last season which was 67%, 80% and 100% respectively.
• The 3 week submission rate for 2023-24 is 75% which much lower than last season, (80%).
• The six week in calf rate is73%, this is up on last season (68% E).
• The not in calf rate is 12%.
• 67 replacement calves were reared which is as per budget.
Other points of interest
• The cost of supplements purchased is up. More PKE has been purchased compared with budget, (about 14 t), and the average price will be about $345/t which is about $15/t more than budget. The PKE contracted for the rest of the season is at $305/t landed but the average for PKE purchased so far is $359/t.
• Fencing costs are up this year as one third of the farms’ fencing is being replaced due to its age. In addition, about 1 ha of steep land will be fenced off for riparian planting.
• Calf rearing costs are up as this year the decision was made to rear calves on 50-50 mix of whole milk and milk powder. The cost to the owner was neutral, but it meant the contract milker was better off as more milk was sent to the factory.
• Payments to the contract milker are down 6% with the reduction in forecast milksolids.
Strategy and financial
Strategic plan
Have a very profitable business based on a high input system that is implemented to a high standard.
Minimise waste, (in any form), from the system through application of good management of the system e.g. cows, (empty & losses), feed, minerals, pasture, effluent.
Have a system that consistently delivers excellent physical and financial KPI’s irrespective of season and pay out.
Financial
Deliver very good cost control, specifically around the use of basic, lower cost, feed inputs. Manage the budget to identify the minimum requirements to generating high production.
Analyse and benchmark the system to identify opportunities for improvement i.e. high profit will come from executing the current system well rather than chasing the ultimate system.
Continue to use surplus cash to strengthen the financial position of the business.
Farm policy and infrastructure
Feed
Herd
People, health and safety
Environment
Budget last updated May 2023
INCOME | $TOTAL | $/KgMS | $/COW | $/HA |
Net Milk Sales
Based on milk production for the year of 134900 kg MS @ $7.89per kgMS advance and deferred payments. Includes Fonterra dividend of $0.90 per share on 129,000 shares. Milk revenue is net of the DairyNZ levy 3.6 cents per kg MS.This milk income is the farmers best estimate of their likely net milk sales. It may or may not be out of date based on new information from Dairy Companies. It does not necessarily reflect DairyNZs milk price forecast.
|
1,085,110 | 8.04 | 3,742 | 14,865 |
Net Dairy Livestock Sales
54 MA cows/Surplus R 2 heifers @819 and 210 bobby calves @ $26. Cow sales are a mix of culls and surplus in-calf heifers and in milk cows.
|
49,600 | 0.37 | 171 | 679 |
Other Dairy Cash Income
Rent for surplus housing on the property.
|
14,040 | 0.10 | 48 | 192 |
NET DAIRY CASH INCOME | 1,148,750 | 8.52 | 3,961 | 15,736 |
EXPENSES | $TOTAL | $/KgMS | $/COW | $/HA |
Wages (incl. ACC)
This is payment to the contract milker and covers remuneration for 1.6 FTE plus some relief milking and allowances for calves reared. This also covers the contract milkers share of shed, power, farm bike and communication costs.
|
204,750 | 1.52 | 706 | 2,805 |
Animal health
Covers teat spray, mastitis treatment, dry cow, teat seal, antibiotics, vaccinations , lameness, metabolic treatments and general vet costs.
|
10,850 | 0.08 | 37 | 149 |
Breeding and herd improvement
Heifers mated to start calving a week earlier than mature cows. AB for 5.5 weeks. Budget covers 360 inseminations @ $14 /straw and $6.00 per insemination fee. Herd test 4 times per year one milking only. Six bulls will be leased, to use with the heifers and with the herd after AB is finished. Mating goes for 12 weeks.
|
18,630 | 0.14 | 64 | 255 |
Farm dairy
Contract milker pays for farm dairy costs such as rubberware and detergent. This cost is for milking machine testing and sundry items that are the owners responsibility.
|
3,000 | 0.02 | 10 | 41 |
Electricity (farm dairy, water supply)
Contract milker pays for the farm and shed electricity.
|
0 | 0.00 | 0 | 0 |
Supplements made (incl. Contractors)
This is pit silage made on the milking platform. The amount varies each year depending on the spring growth. The budget is for 48 t DM pit silage, (12 ha at 4 t DM/ha) at $0.17 c/kg DM in the stack.
|
8,160 | 0.06 | 28 | 112 |
Supplements purchased
The budget is for 308 t PKE at $330/t landed, and approximately 315 t DM of maize silage at $458/ t DM in the stack. Also included is $12,500 for minerals which are added to the feed. The PKE is not contracted yet but the hope is that the landed price should actually come in around $310-315/t. There is high expectations that there will be some good deals regarding PKE contracts around fielddays time.
|
251,300 | 1.86 | 867 | 3,442 |
Calf rearing
This covers 3-4 t of meal, shavings for bedding, de-horning and young calf animal health costs. Plan is to rear about 67 replacement heifer calves.
|
7,000 | 0.05 | 24 | 96 |
Young and drystock grazing
Calves leave the farm December 1st as weaners and return to the farm May 1st as in calf heifers. Prices are now $10.00 per head per week for 67 calves for 22 weeks and $14.00 per head per week for 67 yearling heifers for 52 weeks, (grazing for bulls during mating are included). This includes freight and all animal health including zinc and PKE fed at no extra charge.
|
64,300 | 0.48 | 222 | 881 |
Fertiliser (incl. N)
This is net of $1,320 fertiliser rebates. 65% of the farm is irrigated with effluent. Over the whole year the effluent area gets an additional 90 kg N per ha applied and the non-effluent area gets 120 kg N per ha. Fertiliser applied is urea, PhasedN and sulphur depending on the time of year and the soil conditions. August and September fertiliser and nitrogen for the whole farm is now applied by helicopter, as is the autumn fertiliser for the non effluent area. This costs about $6,500. Contour and soil conditions in the late winter and early spring mean that a much better coverage can be achieved with the helicopter. The contour of the non effluent area is difficult to evenly spread fertiliser using land based spreaders so using a helicopter on this land gives more efficient use of fertiliser.
|
73,450 | 0.54 | 253 | 1006 |
Regrassing & cropping
No regrassing planned for the 2023-24 season.
|
0 | 0.00 | 0 | 0 |
Weed and pest
Weeds are not a problem.
|
0 | 0.00 | 0 | 0 |
Vehicles & fuel
Vehicle costs are low as only have to pay for the maintenance and running of 1 tractor, which was replaced in 2020-21. Feed pad and stacks are near the Dairy shed so the tractor is not running very much. The contract milker supplies and pays the running costs for farm bikes.
|
4,650 | 0.03 | 16 | 64 |
R&M (land, buildings, plant, machinery)
The dairy shed, feed pad and effluent system are only seven years old and other infrastructure is in good order so R and M is relatively low.
|
14,400 | 0.11 | 50 | 197 |
Freight and general farm expenses
Includes bio security levy of $0.024/kg MS
|
5,540 | 0.04 | 19 | 76 |
Administration
Covers accountancy, bank charges, and general office costs. This is lower than for an owner operator as the contract milker does a lot of the day to day organising so communication costs for the farm owner are low. Do own GST returns which keeps costs down.
|
4,000 | 0.03 | 14 | 55 |
Insurance
This is significantly higher than last season due to insurance company premium price increases. The insurance on just the two farm houses has increased 20%.
|
7,000 | 0.05 | 24 | 96 |
ACC
No owner ACC paid.
|
0 | 0.00 | 0 | 0 |
Rates
As per current rates demand.
|
12,300 | 0.09 | 42 | 168 |
TOTAL FARM WORKING EXPENSES | 689,330 | 5.11 | 2,377 | 9,443 |
CASH OPERATING SURPLUS | 459,420 | 3.41 | 1,584 | 6,293 |
Non-cash adjustments have been included below the cash analysis to enable fairer comparisons to be made between farms. These adjustments are not part of a cash budget however to fully understand the efficiency of the farm business they are an important aspect.
$TOTAL | $/KgMS | $/COW | $/HA | |
Value of change in dairy livestock
Expect to have on hand 31/5/2024, 3 more R 2 heifers, and 3 fewer MA cows. The value of the change in livestock on hand is based on the 2023 IRD NAMV. The total livestock income, (cash and non-cash) of $0.37/kgMS.
|
-600 | 0.00 | -2 | -8 |
Labour adjustment
This covers about 2 part days per month on farm as well as governance and administration for the business. It equates to 0.1 FTE for the year of unpaid owner input.
|
3,500 | 0.03 | 12 | 48 |
Feed inventory adjustment
The amount of supplement taken in to the 2024 winter is likely to be similar to the start of the season.
|
0 | 0.00 | 0 | 0 |
Depreciation
This is quite high as cowshed, feed pad and effluent systems are only 8 years old. It has been based on 2021-22 Financial statements plus some allowance for additional year's depreciation. No major fixed asset purchase/sales are planned for the 2023-24 season.
|
65,000 | 0.48 | 224 | 890 |
DAIRY GROSS FARM REVENUE | 1,148,150 | 8.51 | 3,959 | 15,728 |
DAIRY OPERATING EXPENSES | 757,830 | 5.62 | 2,613 | 10,381 |
DAIRY OPERATING PROFIT | 390,320 | 2.09 | 1,346 | 5,347 |
2021-22 season review
Financial KPI's* | Budget | Actual |
Milk Production (kgMS/ha) | 1800 | 1,771 |
Milk Production (kgMS/cow) | 429 | 420 |
Net Dairy Cash Income ($/kgMS) | $7.30 | $8.94 |
Total Farm Working Expenses ($/kgMS) | $4.29 | $4.79 |
Cash Operating Surplus/Deficit ($/kgMS) | $3.01 | $4.16 |
Gross Farm Revenue ($/kgMS) | $7.55 | $9.61 |
Operating Expenses ($/kgMS) | $4.80 | $5.27 |
Operating Profit ($/ha) | $4,955 | $7,687 |
*These KPI's are based on cash book actuals to 31 May 2022 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
Click here for PDF of 2021-22 budget v actuals
2019-20 Season review
Financial KPI's* | Budget | Actual |
Milk Production (kgMS/ha) | 1,695 | 1,713 |
Milk Production (kgMS/cow) | 446 | 442 |
Net Dairy Cash Income ($/kgMS) | $7.09 | $7.43 |
Total Farm Working Expenses ($/kgMS) | $3.93 | $4.13 |
Cash Operating Surplus/Deficit ($/kgMS) | $3.16 | $3.29 |
Gross Farm Revenue ($/kgMS) | $7.09 | $7.38 |
Operating Expenses ($/kgMS) | $4.76 | $5.01 |
Operating Profit ($/ha) | $3,954 | $4,050 |
*These KPI's are based on cash book actuals to 31 May 2020 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
Click here for PDF of 2019-20 budget v actuals
Feed situation May 2020
Feed situation
Current situation | Target for 31/5/2020 | Target for PSC | |
Stocking Rate | 4.17 heifers are back | 3.96 | 3.96 |
Body Condition Score | 4.3-4.4 | 4.4-4.55 | 5.0 |
APC kg DM/ha | 2100 | 2400 | 2350 |
Growth rates kg DM/ha/day | 50 | 35-40 | 20-25 |
Supplements on hand | 274t DM maize | 253t DM maize | 214t DM maize |
Actions taken to address the feed shortage
Plans to achieve target APC and BCS and PSC targets
Concerns and plans for the upcoming weeks
2018-19 season review
Financial KPI's* | Budget | Actual |
Milk Production (kgMS/ha) | 1,704 | 1,624 |
Milk Production (kgMS/cow) | 473 | 451 |
Net Dairy Cash Income ($/kgMS) | $7.01 | $6.92 |
Total Farm Working Expenses ($/kgMS) | $3.94 | $4.36 |
Cash Operating Surplus/Deficit ($/kgMS) | $3.07 | $2.56 |
Gross Farm Revenue ($/kgMS) | $7.05 | $7.15 |
Operating Expenses ($/kgMS) | $4.65 | $4.98 |
Operating Profit ($/ha) | $4,090 | $3,531 |
*These KPI's are based on cash book actuals to 31 May 2019 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.
Click here for PDF of 2018-19 budget v actuals
Other points of interest
Want to see how the top operators are spending their money? Are there areas for improvement in your own business where savings can be made? We’ve collected in-depth current season budgets from a number of top performing farms with a focus on lower ‘per unit’ cost of production to help you identify opportunities.