Budgeting, Corrie and Donna Smit (Bay of Plenty)

View/download PDF of updated budget

Key Points

•    The total milk solids for the year finished 16.7% up on last season and 10% up on budget.  The last of the herd was dried off May 10th.
•    Pasture harvested for year is 15.9 t DM/ha which is 8% up on last season, (14.7 t DM/ha), but still below the farm best 17-18 t DM/ha.
•    An improved calving pattern meant that cow milking days to the end of December was up on last year despite a few less cows. This contributed significantly to the increase in production for the year.
•    The first half of the season had normal rainfall season but peak growth rates in the spring were not been as high as usual.  There was a short period in February/March when it got a bit hot and dry, but on the whole the summer and autumn went well. 
•    Higher production has come at a cost, with imported feed, (supplements and grazing), being more than double last season.
•    Total operating expenses, (Opex), were 19% up on budget. With the additional milksolids produced Opex/kgMS of $4.89 only 8% up on budget. 
•    Most of the increase is due to additional feed, fertiliser, and one off rates payments.


Comments

Production for the season was 223,700 which was 16.7% on last season and 10% up on budget. This is from 573 cows, which was 7 less than budget.  
It was an average winter and early spring with regard to rainfall and soil moisture, with dry cows only needing to be stood off pasture 5 times. Peak pasture growth rates in the spring were not as high as usual, which might be due to fewer than normal sunny days during this period. There was a short period in February/March when it got a bit hot and dry, but on the whole the summer and autumn went well. 
Pasture cover and cow body condition score at the end of May 2023 were not on target. With the benefit of hindsight the herd was milked on a little too long. Additional winter grazing was secured for the herd at the last minute which allowed for 100 cows to be grazed off for an extra 6 weeks. This has added another $30,000 to grazing costs, but helped to ensure cows gained adequate condition pre calving and pasture covers at calving were on target. 
Nitrogen applied for the year is 86 kgN/ha which is up on the previous year of 74 kgN/ha. An extra one and a half rounds of nitrogen was applied in June and July as leaching had been higher in the autumn with all the summer/autumn rain that the region received. This helped to increase pasture cover at calving to near target, but has meant fertiliser costs are up on budget.
Imported feed this season, (supplements and off farm grazing), are double what was used last season. Two thirds of the supplements fed were baleage from inventory, fed in the late winter and spring. Last season no supplements were fed in the first half of the season.
There have been very few animal health issues so far this year. At drying off last season all cows over 150,000 SCC were treated with long acting antibiotic which definitely reduced the incidence of mastitis in the early part of the season. Somatic cell counts for the year finished under 130,000, which is significantly below the previous 3 years, (170,000 average).
Unscheduled repairs and upgrades were made to all the races in August to repair damage that resulted from the extremely wet summer and autumn. This has added $25,000 to the repairs and maintenance costs. This has been offset by savings in all other areas of R & M so total R & M for the year is close to budget.
Rates rises and a change to the timing of payments has also significantly increased the costs of rates for the year.

Current situation

Grazing for 100 cows has been secured again this winter with an external grazier. These cows will leave the farm mid-May.  The rest of the herd will go to the support block at the end of May as usual and the yearlings will return to the milking platform till early July.
The pasture cover is currently about 2,100 kgDM/ha. This is on target as the herd is off farm for 6-8 weeks prior to calving. Currently the herd is at an average body condition score, (BCS), of 4.3 which is about usual for this time of year.

Calving and reproduction

•    The calving rate was 62% after 3 weeks, 78% after 6 weeks was 96% after 9 weeks.  This is much improved on last season’s figures of 53%, 75% and 94% respectively.
•    Submission rate is 74% which is down on last year. This year used 2 rounds of “beacons” for heat detection which are more accurate and make identification easier. Last year’s submission rate of 81% was probably in part due to some cows being incorrectly identified as in heat.
•    132 replacement calves were reared plus 55 beef animals. The beef calves were reared on milk powder at the support block and have now gone to the beef enterprise.
•    The empty rate for the 23/24 season mating was 9.4%. 

• Vision
  To maximise growth with quality assets, careful timing, superior relationships, sustainable profitability, and a balanced lifestyle of family and fun.
  Have a clear strategic plan and awareness of the importance of good governance.
  Be industry aware so that business decisions are made based on up to date industry information.
• Budget updates
  Do farm administration on a daily bases so cash flow and budgets are always up to date.
• Debt
  Repayment of debt is a priority, which means the business is better able to withstand a downturn.
• Know the current situation
  Monitor farm physical information frequently so decisions can be made quickly and are based on current farm information.
• System
  Have a low-cost, simple system that has low environmental impact which is easily communicated and replicated.
• Communication with staff
  Have clear objectives and communicate that to staff. Give staff responsibility and expect them to operate unsupervised.
• Environment
  Continue to follow best practice environmental guidelines to ensure long term sustainability for the land and the business.
• Networking
  Network frequently and always be open to new ideas.

• Farm policy is to operate a low input system, with imported feed and winter grazing approximately 8-10% of total feed used. In low payout years the owners are prepared to reduce the amount of imported supplement.
• The farm has two 20 a-side herringbone sheds.
• The furthest paddock is 1.4 km from the dairy shed.
• The farms are well subdivided, with good internal races and water supply.
• Young stock are grazed off the milking area from weaning until May 1st.  They are wintered on the milking area until the start of calving when they are returned to the support block. The yearlings can be brought back to the milking platform during the season to help deal with any feed surpluses. This has usually been for October and November to help control residuals.
• 100% of the herd is wintered off which helps avoid pasture damage through the winter on the low lying wet soils. In calf heifers go to external grazing from May 1st till the start of calving, and 100 MA cows go to external grazing from mid-May till the start of calving. The mixed age cows are grazed at the support block from June 1 for about 5 weeks.  About 200 of the later calving cows are left at the support block until late July/early August.
• The focus is on maximising grass grown and maximising the utilisation of that grass. Achieving 1,500 kg DM/ha post grazing residuals is key to the overall pasture management plan during the milking season.
• Pasture cover is monitored regularly, (with plate meter or eye assessment), and reviewed with owners fortnightly. Supplement use is based on pasture cover and growth rate information.
• Drying off decisions are made to ensure early winter cow condition and pasture cover targets are met.  Key targets are body condition score 5 and 2,400 kgDM/ha pasture cover at the start of calving, (July 15).

• Milking platform
  The farm is low lying and gets very wet in the winter. Effort is made to minimise mud on the milking area. If conditions get very wet, mob sizes will be reduced and back fencing will be used. Cows are stood off on average about 7-10 days from calving until spring. Maintaining pasture quality is vital and preferably is done with animals rather than machines. Yearlings may come back to the milking platform to help with pasture control. On average about 10 ha is harvested each year for silage.
• Supplements
  Baleage, hay and PKE may be fed in the spring to maintain post grazing residuals and to reduce pasture damage if soil condition's are too wet. However most supplement is used in the late summer and autumn. The budget has allocation to purchase about 100 t of PKE, (150 kg DM/cow) and make 40-50 ha of silage/baleage and hay on the milking platform and the support blocks. PKE is fed out in troughs on the race to avoid pasture damage.
• Pasture renovation and weed control
  Pasture renovation is a regular part of the farming plan, mainly to repair any damage done in the spring and from mobbing in the summer heat. Any paddocks that are under performing will be re-grassed as well, so the area renovated each year can vary.
  Weed control is high priority so that every bit of land is available for grass to grow.
• Support block
  There is 53 ha of support block. This provides about 40-50 ha of silage and baleage, (about 100-125 t DM), grazing for weaners from November to May, winter grazing for 70% of the herd for 6-7 weeks and grazing for yearlings from July to May. Some supplement from the support block can be brought back to the milking platform if needed.

• AB is done for 5 weeks. No pre-mating heats are done but extra time and effort are put into the 5 weeks of AB. Four bulls per herd are used after AB and are rotated every 3-4 days, 2 on 2 off.  4 bulls are run with the heifers for 5 weeks and then 2 are returned for use with the milking herd after AB. The length of mating is 12 weeks.
• Since 2019 the breeding policy is to selectively mate A2 cows to A2 semen. For the 2024 season premier sires will be used as most of the bulls in premier sires are A2 now. Some Hereford semen will be used on about 100 of the lower BW cows.
• Herd testing for 2024-25 will be 3 times for the year, (2 milkings).
• Pregnancy testing is done via milk sampling to minimise impact on the cows.
• The SCC for the herd is under 135,000 and has reduced from previous years with more attention being paid to controlling mastitis and correctly treating high somatic cell count cows.
• Dry cow therapy is based on best practice recommendations with cows over 150,000 SCC being treated with long acting antibiotic.  The rest of the herd is teat sealed only.
• Calves are reared on colostrum, whole milk and meal.  Effort is made to ensure all calves receive gold colostrum in the first few hours after birth. This ensures more healthy calves which are easier to rear.

• Labour consists of 2 herd managers (one for each farm) and 1 additional staff member employed to provide relief milking, tractor work and any other support needed for both farms.
• The farm owners contribute 0.3 FTE of unpaid input. This time covers administration, strategic planning and governance as well as milking for herd testing, tail painting and staff sick leave and holidays.
• Effort is made to ensure the the working environment is enjoyable and a good work/life balance is achieved.
• Training opportunities with external providers such as vets or industry specialists are provided to staff to ensure skills sets stay current.
• Remuneration recognises experience and responsibility.
• The HazardCo system has been used to ensure manuals with processes that meet OSH industry standards are on farm and implemented.

• Policy
  Apply best practice animal husbandry and land management to ensure excellent profitability without compromising the environment.
  Be early adopters of new technology or protocols for good environmental outcomes before they become mandatory.
• Nitrogen
  Nitrogen use is about 80 units of N per hectare. Purchased N surplus for the farm is below 25.
• Soil testing and fertiliser
  Soil tests are done each year on different paddocks. Olsen P levels are 34 and pH is 6.1. Fertiliser applications are based on soil tests and recommendations that are considered optimum for the soil types. The soils on the farm are 55% Paroa_ 2a.1 Loam, (a poorly drained Gley soil) and 45% Awakaponga_3a.1 (an imperfectly drained recent soil).
• Effluent
  Effluent can be applied to 46 ha, (25% of the farm), via traveling spray irrigators.The effluent systems have been upgraded in the last 3 years and are now fully lined with stirrers installed. A new effluent pond was added in the 21-22 season so storage capacity is now 90 days.  Best practice is followed to ensure effluent is not sprayed near drains or canals.

Overview

We have been farming for several decades, so financially, we are in a better place than many to “weather this storm”. This season has gotten off to a better start than last season so our focus is to capitalise on that good start and concentrate on converting grass to milk.
Our experience from previous downturns means that we will still be reviewing all financial and farming decisions to eliminate any waste and to optimise efficiency. The key things we will focus on are:

• Knowing our numbers, both financial and physical, so decisions are based on facts
• Managing our business "treasury i.e. overdraft facility, flexi debt arrangements, timing of bill payments etc, to minimise interest paid
• Using actual/estimates for provisional tax assessments
• Spending to make sure we are back to a no-frills budget.

What advice would you give to farmers who are either first time sharemilking or farm owners?

For those in their first year of sharemilking or farm ownership it will be really tough. You can farm your way through this by following best practice in everything you do.

• Do your budgets and cashflow forecasts and keep them current. If you are not sure ask for help.
• Communicate regularly with your banker.
• Follow the spring rotation planner and keep doing feed budgets. Efficiently using feed is more important than ever.
• Be strategic with spending. For example, do soil tests if you haven’t already, and be very strategic with fertiliser and nitrogen. Keep away from gateways, water trough areas or any “camp sites” when putting fertiliser on.
• Make sure that any overdraft facility is just enough for your needs and not more. Interest rates for overdraft can be affected by the size of the limit.
• If you have some of your debt and overdraft on the one account that all income is paid into, make sure you manage your money efficiently to maximise the amount of time the balance is at a lower level. For example, make sure when paying bills you do it individually, not as batches. Don’t set up payments for everything on the 20th of the month, if your rates are due on the 25th set up a bill payment for that date. Having funds in your account for 5 more days saves interest!
• There are farmers out there that have been in the same position, so try to connect with them for moral support.

What words of positivity would you give to farmers planning for the coming months ahead?

There are many smaller things you can do to make a difference to your cashflow.

• Cut R and M to only essentials
• Review insurance to make sure you are not over-insured. For instance, don’t individually insure assets that are worth less than $5000, put them all under one heading. Take time to get quotes from more than one provider.
• Do a "deep dive" into a couple of expense categories every month or so to make sure you are getting the best value. We have saved $60/month by tidying up our communication and telephone subscriptions.
• If you are not locked into an electricity provider, get quotes from other providers.
• If you rear beef calves don't record them on MINDA, or at the very least, make sure they are recorded as non-dairy. Non-dairy animals incur a lower industry levy than dairy when they are sold.

Do you have any tips and tricks for looking after your people on farm?

Make sure you continue to let your staff know they are valued members of your team. There are many ways to do this that don't necessarily need to cost much money.

• An extra couple of hours off here and there
• Team lunch or dinner
• Supermarket vouchers

Staff are a very important part of our business. To make sure they know we value them as much as in previous years we have given pay rises to match inflation.

^{*These KPI's are based on cash book actuals to 31 May 2021 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}

Comments

• The estimated operating profit for this season is $6,250/ha which is slightly down on the budget of $6,800.
• Pasture harvested for the season was 16.7 t DM which is the third lowest since the 2017 floods, and 9% down on 2020-21 season. This contributed to milk production being more than 7% down on budget.
• The decrease in milksolids was offset by a 16% increase in milk price received, ($8.47/kgMS compared with the budget of $7.28/kgMS).
• Farm working expenses were up 41%. A combination of increased prices, (fertiliser, fuel, contractors, feed), changing labour, increased animal health spending and increased discretionary R & M spending.
• Despite considerable variation in actual spending compared with budget the cash operating surplus for the year of $4.91/kgMS was only 11% lower than budget because of the higher payout.
• As per the farm strategic plan, significant debt retirement was again undertaken. A new effluent storage facility was also funded out of cashflow.The estimated operating profit for this season is $6,421/ha which is the second-highest recorded for the farm.

Other points of interest

• 560 cows were milked at the peak of the season which was 20 less than budget due to a high number of late empties.
• Pasture growth and utilisation were about average for the spring and early summer, but significantly down on the 2020-21 season.
• Supplements made on the milking area were less than the previous season, despite having less peak cows milked. The only supplementation used was during the spring which was hay to transition springers.
• Summer and autumn had variable rainfall and 86 t PKE was fed from January till May. This was about 10 t more than budget, but the price was $30/t higher than budgeted so total spend was up on budget.
• Total N use for the season was 80 kgN/ha which was on budget.
• The herd was dried off on May 10th. They are on track to be at target body condition score of 4.9 and pasture cover will 2,500 kgDM/ha by the planned start of calving.
• The six week in calf rate is 67% which is similar to the 2020-21 mating results of 66%.
• Somatic cell counts for the season is 153,000 which is similar to the previous season.
• A last minute change in staff on one of the farms in July was an added challenge to the spring. More input was needed to help the new employee become familiar with the farm and standard operating procedures. They have settled in well but the process certainly tested the farms documented operational systems.
• Better observation of stock, particularly over the calving and spring period, has resulted in lower herd wastage with 9 fewer deaths.
• Animal health costs were 78% up on budget. A wetter spring contributed to more animal health challenges in the spring, including increased lameness. Money was invested in Vet run staff training sessions on mastitis detection and prevention, and lameness management.
• The costs of drugs and minerals were up on budget – in part due to price rises and in part due to the increased identification of issues.
• In the spring there were several instances of hemorrhagic fractures in first calvers - a consequence of prolonged zinc supplementation causing a copper deficiency. This resulted in the loss of these animals and required copper supplementation to correct this deficiency in the rest of this age group.
• The improved payout and better cash flow have allowed for increased discretionary spending on tracks, (to address lameness issues from the spring), and buildings. R & M costs are up about 50% on budget as a result.
• The upgraded effluent storage means the farm now has 90 days of effluent storage.

^{*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 2018-2019 budget v actuals}

Comments

• The 2019-20 season saw pasture species, quality and growth rates for the farm finally returning to similar pre 2017 flood levels.
• Production was up 6% on budget, (12,600 kg MS), despite a drier than usual summer and early autumn.
• The operating profit estimated for the season is $5,676 per ha which is nearly 30% up on budget. The main reason for the variance is the higher milksolids produced and a milk price received of $6.88 which was $1.11 higher than budget.
• Farm working expenses for the season were $2.67 per kg MS was 13% up on budget and operating expenses finished at $3.17 per kg MS. Many of the cost categories were up on budget the largest variances were form higher wages, animal health, herd improvement and feed and winter grazing.
• A good winter and spring saw the season get off to a great start. The milking platform was not impacted too much from the drier than average late summer and autumn as it is very low lying and has a relatively high water table.
• The majority of culls went about 1 month earlier than usual from mid-March and an additional 30 t PKE was fed to the milking herd during the autumn. The herd was dried off on May 8^th.
• Nitrogen applied for the season was on budget at about 70 kg N per ha.
• Target pasture cover of 2,500 kg DM per ha and cow body condition score of 4.9 was met by planned start of calving.

Other points of interest

• As a result of a review of the herd genetic merit early in the season a line of 89 high BW weaners were purchased and an additional 50 R 2 heifers were purchased in the autumn.  The extra stock on hand had an impact on animal health, feed and winter grazing costs.
• Peak cow numbers were 16 less than budget as there were more empty cows in the spring than expected as no pregnancy testing had been done the previous summer.  Pregnancy testing was done in early 2020 so this added to the animal health costs.
• Breeding and herd testing costs were up as bulls were leased instead of purchased. More selective mating of A 2 cows to A 2 bulls was also done as part of a plan to move to a completely A 2 herd, plus the price of semen was $3-4 per straw higher than the original budget which was done in April 2019.
• Winter grazing costs were up as more R 2 heifers were grazed off and the grazing prices were higher than budgeted.
• Dock are becoming a significant problem on the support blocks so a weed control programme for docks has been added to the farm plan - this costs about $6,000 per year.
• 2019-20 was not a good year for vehicles with a $12,000 repair bill for one tractor pushing vehicle costs over budget

Feed situation

• Dry off date: 08/05/20
• Culls on hand: 13
• % Milking area regrassed: Nil. 5 ha done on support block due to effects of the drought
• N applied this autumn to date: 30 kg N per ha over the whole farm applied with autumn fertiliser

Actions taken to address the feed shortage

• Started feeding contracted PKE a month early, then continued with baleage made on farm. Fortunately the good spring and early summer meant there was more supplement on hand than usual.
• Culls went from mid-March to mid-April, about 4-5 weeks earlier than usual. The stock agent advised that COVID-19 could affect freezing works space and advised to do this.
• Put on autumn fertiliser, (which includes Sulphate of ammonia at 25-30kg N/ha), as soon as possible after more regular rainfall started. Applied once a week behind the cows.
• Spread nitrogen on support block, don’t usually do this.
• Dried cows off 8/5/2020.

Plans to achieve target APC and BCS and PSC targets

• Cull remaining 13 cows – hopefully in next couple of weeks.
• Segregate mobs for preferential feeding of lighter cows to improve their BCS.
• Continue to feed baleage to maintain a slow rotation and still feed cows well enough that BCS targets are met.
• At current stocking rates, the present growth rates of 40kg DM/ha/day plus 9t DM of baleage will allow for the planned feeding levels and still achieve the target pasture cover at end of May.
• Continue to monitor pasture growth rates to ensure they are on target.

Concerns and plans for the upcoming weeks

• Pasture covers on the support blocks are lower than target. Having enough feed for the winter is still a concern. We have enough supplement, but if it is wet we will damage the support block pastures. We will stand cows off and on, but it still pugs the pasture.
• Have advertised to see if there are any grazing blocks available locally.
• Have spoken to a couple of kiwifruit conversion blocks to see if they need non planted paddocks grazed, just keeping our ear to the ground for options.
• If growth rates on the milking area are below budget more supplement could be fed if needed so pasture cover doesn’t go below 2000kg DM per ha.

^{*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 2018-2019 budget v actuals}

Comments

• Financially and physically this season has been a lot more like the average for the farm prior to the floods of autumn 2017.
• Milksolids per ha of 1,352 is 100 kg per ha higher than the previous 2 flood affected seasons.
• The seasons operating profit based on the cashbook analysis of $4,677 per ha, is $11% below budget, but still well above the DairyNZ estimated average for the region for 2018-19 of $1,287 and the previous 2 years average for the farm of $3,500 per ha.
• Operating expenses for the year were slightly up on budget, ($3.12 per kg MS compared with the budget of $3.09).  Farm working expenses were very close to budget, ($2.51 per kg MS actual compared with the budget of $2.52). The feed inventory adjustment and depreciation were up for the season, but this was offset by less owner labour than budgeted.
• While production for the season was close to budget, (up 0.6 %), gross farm revenue was down due to both the milk price received, ($6.35 per kg MS), and total livestock revenue - cash and non-cash, ($0.25 per kg MS), being below budget.

Other points of interest

• 2018 was another wet spring with cows being stood off for 11 days compared with the usual 2 or 3. Production to the end of December was 13% up on the previous season with no imported supplement fed at this point.
• Pasture & crop harvested for the season was 17.0 t DM per ha, up 8% on the previous season and more in line with the levels pre 2017 floods, (3 year average pre 2016-17 was 18.5 t DM per ha).
• The dry summer and autumn meant that 84 t PKE was fed, this being 28 t less than budget but at a higher price per t so total imported feed costs were only slightly below budget.
• Good late spring/early summer pasture growth rates resulted in 15 more ha, (up 25% on budget), of supplement being harvested, with higher yields compared with previous years.
• Supplement on hand at the end of the season was down 43.1 t DM as more was fed out in the late autumn to increase pasture cover due to lower than budgeted pasture growth rates.
• Nitrogen use for the season was 73 kg N per ha which was slightly below the budgeted 80 kg N per ha.  Less N was used in the autumn in part due to the weather and soil conditions not being suitable for N applications.
• This season R & M costs were below budget for a change, probably in part due to higher R & M spending over the previous two seasons as a consequence of remedying the impact of the 2017 autumn flooding.

^{These KPI's are based on cash book actuals to the 31/5/2018 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.}

Comments

• The very wet spring, on top of the floods in autumn 2017 had a big impact on early season production which was 8-9% behind budget by mid-December. Despite good summer/autumn rainfall this loss was never regained, largely due to the very hot conditions affecting the cows, and also resulting in a proliferation of poorer quality summer grasses.
• Much of the variation from budget for the 17-18 season relates to the poor spring weather or the carry over effects of the 2017 autumn floods.
• The budgeted milk price was $0.69 lower than the actual received of $6.52 which meant that despite production being 115 below budget total income was only $17,000 below budget.
• Total farm working expenses for the season were $22,000 below budget, although with the much lower milksolids produced, FWE per kg MS of $2.64 was $0.19 above budget. The main reason for total costs being below budget was a significant relief on rates due to the autumn 2017 flooding.
• Operating profit for the year is estimated to be $3,686 per ha which is very similar to the budget forecast, and the flood affected 2016-17 season. This is well down on the farms best financial performances in 13-14 and 14-15, so the impact of the severe weather events of the last 18 months has been significant.