LIC | Review of your farm system and business


Review of your farm system and business

The reality of a low payout has been confirmed for this season.  What is totally unknown is when will the recovery start?  

Trends overseas being 10-20% up in milk production with little incentive to reduce production, indicates that next season will also deliver a low payout.  If so, that will make for three tough years in a row.

Many commentators in the industry have put forth their views of what changes farmers should be making to survive the current short-term low payout and a long-term lowered average payout in the mid-$5 per kilogram milksolids (MS) range.

I see many different farm systems.  I see farms performing well from system 2 to system 5.  I have observed that there is no single ‘correct’ farm system.  What is correct is when a farmer knows where their sweet spot is for maximising their farm’s performance. That may be with none, or with over 1 tonne of supplementary feed per cow bought at a low price.

There are four things that every farmer should know right now:

  • What their financial position will be at the end of this financial year,
  • What their position will look like next season with another payout that could have $4 in front of it,
  • What farm system matches their farm’s strengths the best,
  • What basic farm business fundamentals hold true across all farm systems and all pay-outs.
     

Budgets

These must be done to see where you will end up at the end of this financial season, and what finance needs you have to plan for.  Communicate early and well with your bank.  Stick to the plans you make to show credibility.

  • Create a budget for season 2016-17.  
  • What does this look like at a $4 payout?
  • What working capital will you need with a $3 advance?
  • What can you get your Farm Working Expenses (FWE) down to without cutting into the muscle and affecting production too much?
     

Farm System review

Don’t be afraid to stick to your knitting – as long as the knitting is looking okay!  We milk cows, so don’t be a sheep.  The worst reason for making a system change up or down is because your neighbour is making a change.

Take time to review how your farm system is performing.  What do you know to be the strengths of the farm business?  The most important is the people factor, and skill set and ability to implement that particular farm system.  

What do you know to be your own strengths and what do you get enjoyment from?  Build your farm system around that, not what others are doing or say you should do.

Then test it financially using likely medium to long-term price averages.  Does it make a profit at a $5.50 payout?  

If you feel you do need to change the farm system you are operating in, then seek good advice to check the numbers before making any knee-jerk reactions.


Farming Fundamentals

Successful farm businesses know that at low and high payouts, some fundamentals do not change. Pasture quality can be improved by doing the following:

Pasture grown and harvested

Are you doing all you can to maximise the cheapest source of feed (pasture) for your farm and maximising use?  A 15% difference has been shown between the average farms and the top farms for pasture eaten per hectare.  For an average farm growing 15 tonnes (t) of dry matter per hectare per year, that is immediately about $700/ha of lost revenue. The only cost of getting this in most farms is the willingness to do regular pasture walks and then make best use of the data gathered. 

Do you know which are your poorest performing paddocks on your farm?  One real example was a farm measured at growing 24 t in the best paddock and 11 t in the worst.  That shows the huge potential hiding on-farm.  

Did you know that increasing the pasture quality from 11 megajoules of metabolisable energy (MJME) to 12 MJME from better management can lift a cow’s spring peak from 1.7 MS to 2.1 MS per day?
 

Cost Control

In high or low payouts, do you have good control of FWE?  What is muscle and what is fat for your farm to succeed?  Do you know the difference between “nice-to-haves” and “must-haves” in your budget?
What repairs and maintenance can be deferred, and for how long until that starts to affect farm performance?  Sometimes you do have to spend a dollar to make two, such as on fertiliser or dry cow therapy.  But seek good independent advice on such expenditure.

If you don’t already, create a monthly cash flow (pay someone to help you if you can’t do this).  Compare actuals against budget.  You can’t manage what you are not prepared to measure.

Darren Sutton
FarmWise Consultant

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