In this episode, we talk to dairy farmer Justin Walsh about his business structure, resources and goals and how he uses his Dairy Farm Monitor Report to measure and monitor the farm’s annual physical and financial performance. Justin also talks about the importance of getting the daily decisions right on farm by calculating metrics like his margin over supplementary feed cost as ultimately it is good daily decisions that drive a profitable business performance at the end of the year.
Justin, his wife Libby and their family have developed a strong profile in the NSW dairy industry in recent years having been a very successful Focus Farm with Dairy NSW. He talks about making sure that the business is set up to optimise the use of resources available to it – in their case, matching their calving pattern to their pasture growth curve, improving pasture utilisation on their dryland farm and the importance of this in a pasture based system more generally. This and other decisions on farm have improved pasture utilisation on the milking platform by 2 tonnes of dry matter per hectare over the last 4 years which is a great result on a dryland farm through some tough drought conditions. There has also been an improvement in cow efficiency with the herd now producing 1 kg milk solids per kilo of cow liveweight.
The business has improved its profitability over the last 4 years from around $1.00/kgMS to over an impressive $3.50/kgMS in the 2019/20 financial year which translates to a Return on Total Assets Managed of over 6%. This is despite some incredibly high feed prices as a result of the recent drought conditions with their concentrate prices averaging $530/tDM for the 2019/20 financial year.
A keen participant in the NSW Dairy Farm Monitor Project, we talk through some of the numbers in their business over the last 4 years, and also the other value that the report provides, such as enabling a strong and robust conversation with financiers and financial planners.
Access the transcript of this episode here
Take a look at the NSW Dairy Farm Monitor Project and see past performance of the NSW dairy industry.
For more info on the Tocal dairy and the business report visit the Tocal dairy’s Monthly Business Report
Watch Justin’s Dairy Research Foundation presentation “On Farm Settings to Control Risk and Drive Profit” from 2020.
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The Business of Dairy
Episode #2 Transcript – Is My Business on Track? – Justin Walsh
Sheena Carter: Welcome to the business of Dairy podcast, I'm your host, Sheena Carter, development officer with the New South Wales Department of Primary Industries dairy team. Each month I speak with industry people generous enough to share their stories, knowledge and skills with us to help you in the increasingly complex area of farm business management. This month, I chat with Justin Walsh, who operates a dairy business with his wife and family on the New South Wales south coast. We talk about their business structure, its resources and goals, and how they monitor and measure their performance annually using their Dairy Farm Monitor report. Justin also mentions the importance of getting the daily decisions right and how he measures this as these decisions ultimately drive the performance of the business across the year.
Welcome, Justin, you've developed quite a high profile in the New South Wales dairy industry over the last few years, particularly with your successful journey as a focus farm with Dairy New South Wales a few years ago and also last year with your presentation at the Dairy Research Foundation symposium. Over your two year period as the Focus Farm, you're able to make adjustments to your farm that saw your operating profit, or EBIT, improve dramatically, which was quite incredible given the seasonal conditions that were impacting businesses at that time. Can you just briefly describe your business to the listeners, sort of its structure and also the type of dairy system you're operating and some of your business goals?
Justin Walsh: So, hi Sheena firstly, the structure of the businesses is that we lease the majority of the farm from my parents, when I say we I mean my wife and I, and we’re currently milking two hundred and eighty cows. It's a mixture of, I guess primarily Holsteins, but some other cross breeds and things as well, and it's a predominantly pasture based system, and we feed a relatively high level of grain in the dairy, either home grown fodder or hay when we need to. And that system really dictates our goals in terms of where we want to see it. And that's a system that we think should work well for us because we're in a relatively high rainfall area and we can grow pasture all year round. So that system suits our farm as far as we understand.
Sheena Carter: Okay, great. Now, broadly, what are some of the broad goals in the business?
Justin Walsh: Broadly speaking our goal is to have a highly profitable and resilient business, and so that's quite a broad goal, obviously. And so what that means is we'd like to be achieving in excess of a two dollar EBIT per kilo of milk solids every year, and if we can do that over successive years, that'll build financial resilience within the business, which in turn should help us de-risk the business as well while maintaining profitability long term. And so our major decisions are really based around maintaining that goal or striving towards that goal, or things that will help us achieve that.
Sheena Carter: Great. Now I think part of this podcast is talking about how you measure and monitor this business for performance over time – it's all very well to talk about broad goals, but you need to be able to measure that. And for the listeners, I guess, you know, you're part of the Dairy Farm Monitor project, which for those that don't know, the Dairy Farm Monitor project is a national one that's run in Australia. In New South Wales, it's in partnership between New South Wales, DPI and Dairy Australia. And it gives broadly, industry an understanding of how the dairy farmers in the program have performed within a financial year. But more importantly, for the participating farms who are anonymous unless they choose to identify themselves, it gives you a good understanding on your physical and financial performance over time. Can you tell me how do you use the information in those reports as you get them coming in?
Justin Walsh: So the Dairy Farm Monitor project in itself, I feel is incredibly valuable and so that's why I am happy to contribute to it. I also got a lot out of it, too. And so broadly speaking, there's some high level things that we're looking for in these reports that we get back out, which is, you know, return on assets, manage our cost of production, our EBIT per kilo of milk solids in terms of financial performance. And then also it gives you some very detailed reporting on, you know, some physical performance indicators, such as cow efficiency, home-grown feed in the diet, and then also the further you dig down into it, the more you can get… hone in on particular areas that you may need to improve on or might not be operating as well as you'd like relative to other farms. And so, it’s the relativity to other farms, it's really critical because generally speaking they’re facing similar conditions within a year. And then, so you can look at how you responded to those external factors, let's say, and what the results were, and then going forward though, if you can build up several years of information, it's just invaluable to see how your business is tracking because, you know, like anything, it's a snapshot. A snapshot is one thing, but if you can see progress in either direction over time, it can be incredibly meaningful going forward to make decisions.
Sheena Carter: Yes, and we'll look at some of your numbers and how you’ve tracked that journey of the business over the years a bit later in the podcast. And also for those listeners, I mean, some of the terminology that we might be talking about might be new or unfamiliar, but there's certainly resources through various training programs, such as those with Dairy Australia and other consultants to help you understand what we're talking about. And I think also just talking about, you know, looking at your farm’s results over the years, we must point out that it's very important to context that with the conditions that you are operating in, whether it's price volatility or seasonal volatility, I think businesses are facing much more frequent volatility than what they used to in the past. There's always been volatility, but it comes around more frequently and seems to be more extreme, so we need to context our numbers with the conditions that we're operating in as well. So, we'll talk about some of your numbers specifically in a moment, what are some of the other tools that you use in your business apart from your Dairy Farm Monitor report, some of those business calculations that you do?
Justin Walsh: So, during the course of the year, because Dairy Farm Monitor is a sort of an end of financial year wrap up of… it's really, it's really the outcome of the of the decisions you've made throughout the year. And so we use some handy sort of, you know, little tools throughout the year to help us make those decisions, to try and get each day right. So that if we can focus on getting today right and tomorrow right and the next day right, that at the end of the year, we should be in a position to have done as well as we could have. And so things like… we look at our margin over supplementary feed costs, we use the milk price to grain price ratio to help us determine the level of grain that is appropriate to feed at the time. We also look at… we use a daily operating position sheet which was developed through our Focus Farm, which we've continued on with. And so what that is, it's really a combination of all the things I just mentioned in it, and it gives you a good snapshot of where the business is performing today, let's say, and you can… we sort of do one of those either monthly, or if we make a significant change to our operating position, be it the introduction of a different fodder or something like that, or we change the grain levels, and then we might review that when we need to, but at the very least monthly, and that sort of leads into the DFMP, or Dairy Farm Monitor data at the end as a result of all of that. A little rule of thumb is, on our farm, if we're milking two hundred and eighty cows, well, a one dollar per day increase in our margin over supplementary feed costs, it works out to be one hundred thousand dollars a year. So, it's an important little thing to keep in mind that small changes, if you repeat it over time, over the year, add up to a lot at the end.
Sheena Carter: Yeah well, that's very interesting and you've obviously looked at that detail related specifically to your business, which means that you have a really good understanding of what you're targeting. When you're looking, or targeting a margin over your supplementary feed costs, how do you determine what that target figure is for the business?
Justin Walsh: Well, on our farm, we know that if we're targeting a ten dollar margin over supplementary feed cost per day – so obviously that's not always achievable because as we mentioned before, you've got to context this if, you know, in drought and flood and extreme weather events, you might have to accept that you aren’t going to have a ten dollar margin over supplementary feed cost but you need to have that as your goal so… and we know that a ten dollar margin over supplementary feed cost on our farm should equate to about a two dollar EBIT at the end of the year. That's a very generalised statement, obviously, but unless we're achieving that, a two dollar EBIT at the end of the year is very hard to achieve. So it's sort of linking the daily position to the end of year position because the end of year position is not a, not a fluke, it's a result of what you've done on a daily basis in the year leading up to that. So we don't necessarily want surprises at the end of the year, we want to take control today to dictate where we're going to finish at the end of the year, as much as possible.
Sheena Carter: Yeah, and I think, you know, you've made the comment earlier that an annual farm report is annual. You can't change those decisions once you've got the results in at the end of the year. So it is really important that you're monitoring that farm position on a daily basis and I think often people have a gut sense about how they're going, but sometimes it's really important to actually test that and see that you really are on track and heading in the right direction because you need to be able to pivot and make quick adjustments where you can if things are starting to head in the wrong direction. And I guess, you know, we've also got for farmers that are interested and service providers, there is the Tocal dairy monthly report where we do a similar thing to what Justin's talking about. We've got our margin over supplementary feed cost and various other monitoring of farm performance throughout the month and on a daily basis that people can view online and have a look and start to generate some of these figures themselves for their own businesses. If you're happy to Justin, we might jump into looking at some of your numbers across the years in Farm Monitor, and also for people that aren't in Farm Monitor, DairyBase generates exactly the same information, which is an online tool developed by Dairy Australia that people can use. So if we look at the last four years of your business, how is it improved and what are some of the things that have driven this improvement?
Justin Walsh: Essentially, what we've focused on is how do we optimise the resources that are available to us and so with the farm size we have now, what's the optimal operating position for us to be to obviously maximize profit and also control risk? And one of the beauties of the dairy industry is you can actually have the opportunity to achieve both at the same time, which is fairly unique. So how we start with that is getting our big settings right of what are we feeding the cows? When are we calving the cows? How many cows should we be milking and at what times of the year? So what we did was try to align all of those things with our natural resources of grass production and all that's resulted in a better alignment up and down in terms of where we're positioned. So in terms of results, you know, we've had a massive increase in EBIT over the four years from about a dollar to somewhere in the three dollar fifty range, which… and those results didn't just happen overnight. It was a culmination of successive decisions that were made and we sort of saw some, we actually saw some exponential growth where at first you didn't think things like changing the calving pattern to suit our pasture production or changing our fertilisers schemes and implementing things like Rotation Right. Initially you think they're not necessarily… it's not obvious to you that it's making impact and then all of a sudden they start adding up on top of one another and one plus one starts equalling three and four rather than two and a half. So yeah, that's essentially where we've been over the four years, and how we've done that is we've increased our pasture production. We've gone up to about seven tonnes of dry matter per hectare and we are a dryland farm and that's been in some pretty challenging conditions as well. So even though that's lower than where we think we could be, given the climatic conditions that we faced in the last few years, it's not a bad result. And so that has meant we've milked a few more cows, like our stocking rates increased, and we've actually increased the proportion of grazed pasture in the diet, which has lowered our cost of production whilst maintaining production, and has actually increased our per cow efficiency up to close to 100 percent. So in terms of kilos of solids produced relative to live weight of the cows. So you can't really look at it as one measure as the be all and end all, it's really alignment of all the key measurements. And so what that allows for, and we saw this in the last four years in particular, is our cost of purchase feed went through the roof relative to historical averages, let's say, but because we had alignment in other sections of our business, we could weather that. So, pardon the pun there, but what that meant was that, you know, if you have all of those measurements out of whack, or out of align, you can be vulnerable. So if we can line as many of those key profit drivers up, then if one is out of whack, you can lean on the others to get you through. So I think we saw that time and time again over the last four years that, you know, we never really got all the planets lining up, which is wishful thinking in the dairy industry, to get all your plants lined up in one go. So, you really just want to get as many as possible, as close as possible, and that'll give you the best chance of getting a good outcome at the end, which we saw first-hand and we were very fortunate to experience that and it's really set us up now moving forward to have the confidence that that was… that they really do drive the profit on our farm.
Sheena Carter: Yeah, no that's a fantastic summary of what has sort of happened over that four year period. And I think, you know, you've said you now the utilising seven tonnes of dry matter per hectare on the milking area, and that's, you know, that's an increase of about two tonnes of dry matter over that four year period, which is, as you say, in really tough conditions on a dry land farm. So those are wonderful results. You're increasing your per cow production of solids now from around 480 up to, well, nearly 500 kilos of milk solids over that two years per cow, which is, as you say, increased your cow efficiency. And I think the feed costs, gosh, they have been a really couple of tough years. The last, the last few, and your total feed costs went from around two dollars eighty to up to four dollars per kilo, milk solids. And as you say, purchase feed was incredibly expensive towards the end of the drought and the shortage of feed available and you know, sort of averaging around, just concentrates alone, you know, probably averaging over those last two years, about five hundred and forty dollars per tonne of dry matter, which is, let's hope we don't see those numbers again in a hurry. So I guess, you know, the operating profit, or our EBIT has improved dramatically, and for you and Libby in your farm, that is invaluable. As you say, you know, you can… I guess there’s two components to your business performance, is that operating profit, but also growing your wealth over time. And I think we can see that you're doing that quite successfully, the return to you in the business has improved dramatically over the last few years, despite all the challenges. And I guess it's the, you know, it's the ability to look back and see how you've done that, and that then helps set the direction for where you go in the future. Are there any other benefits that you see for farmers to be, you know, involved in the Dairy Farm Monitor project? Would you encourage others to get on board?
Justin Walsh: I’d definitely encourage others to get on board, I think that it's really just like a business health check-up, I guess it would be a good way to describe it in that it's sort of, you stop and assess where you're at because anyone who's been on a dairy farm will know that it's just so easy to get bogged down in the day to day operation of the farm without stopping and taking a breath and saying, well firstly, you know, let's pat ourselves on the back for things that we've done well, and then also, let's look around and just stop and let's make some strategic decisions that might help us improve things going forward that we can focus on. And unless you have a sort of a break in the daily grind of farming, those things are hard to do. And so I think the Dairy Farm Monitor project helps you, or provides you with that sort of that sort of, you know… here’s an assessment of where we’re at. And so it gives you something to then build off moving forward and obviously looking at, when do we get the final results become public, looking at what the top performing farms have done is really a blueprint to success because the beauty of it is it works in reverse to most other things. It looks at results and then works back to what actually happened on the farm in that year to produce those results. Whereas most other, you know, analysis or business analysis will say this is what you should do and these will be your outcomes. But that's not… we know in practice, that that's not always the case. Whereas the Dairy Farm Monitor works back from that and says that this was the outcome and this is how it was achieved. And essentially for other farmers looking at that data, it's a really good way of not reinventing the wheel because most things that other people are doing, and it's just a matter of assessing what's appropriate, or what things you can draw out of that and implement on your farm, or what's appropriate to your farm, or what's relevant and what may not be relevant in some cases as well. So yeah, I'd certainly encourage everyone they could to get involved in it because it's incredibly valuable information, not just on an individual farm level but from an industry point of view as well.
Sheena Carter: Yes thanks, Justin, and I guess, you know, it is important if you want to do this kind of analysis, that you do need good records, you do need good financial and physical records to get good information and, you know, things like your physical record, sometimes that can be a bit of a challenge with livestock numbers across the year and obviously feed inventory silage or hay that might be used throughout the year but is left in reserve at the end of the year because that all impacts on your cost of production and wealth as well sitting on your balance sheet.
Justin Walsh: One of the things that the DFMP data has provided us with is a really good resource to use when dealing with, like external, so let's say banks or accountants. So it's given us the data to fall back on when, you know, if we're looking for funding or applying for funding or talking to accountants and things like that or financial planning, that the Dairy Farm Monitor data has been incredibly useful for us to not only make it sound like we know what we're talking about, but also gives very useful information to anyone that we're dealing with outside the farm as well to give them a better understanding of our business and how we're performing.
Sheena Carter: Yeah, and I think that is really important. It makes that conversation with those external parties much easier and, you know, it's at your fingertips. You can have that conversation straight away, which is invaluable. Now, I think look, thank you very much for that, Justin. I do just want to mention your journey in the dairy industry is still going ahead in leaps and bounds. You are now a co-facilitator of the New South Wales Focus Farm down in Bega, which is under the steam of Dairy New South Wales. Can you just, and it's only early days with the Focus Farm, would you just give us a brief introduction to the Focus Farm so we can flag it with listeners?
Justin Walsh: Yes, thanks Sheena, so this… well the current Focus Farmers are Kevin and Brodie Game from down at their farm in Bemboka. I'm fortunate enough to get myself and Phil Shannon mentoring me in the role of Focus Farm facilitator, which is an unbelievable privilege that I've been given, and I certainly do our best given the situation, to have a fantastic outcome for Kevin and Brodie and as well as the wider industry. And we've had our first meeting a few weeks ago and a second meeting is coming up. The first meeting was really an introductory meeting for everyone to get to know each other and we'll start getting into the nitty gritty from probably the second meeting on and there'll be some updates coming up and I'd suggest people who are interested to keep an eye out on the Dairy New South Wales publications and social media. And then at some point in the sort of nearish future there'll be an open day that the public, or the wider industry, will be certainly encouraged to attend to ask questions and see where we're starting from and what we've identified as some key goals that Kevin and Brodie want to focus on over the coming sort of 18 months or two years as the program progresses through that journey.
Sheena Carter: Thanks Justin, I really look forward to following that journey. I think Focus Farms are a fantastic opportunity, both for the… as you say, for the farmers themselves, but also the broader industry. So we’ll look forward to following their two year journey. And thank you very much for speaking with us today. You, as always, provide some clear information. You can talk about your business really articulately, and it's always good to see how the business is going and following your journey, so thanks for your time today.
Justin Walsh: Thank you very much Sheena, it’s been good.
Sheena Carter: Thank you for listening to this month's The Business of Dairy podcast produced by the New South Wales Department of Primary Industries Dairy Business Advisory Unit. This series has also brought to you with funding and support from the Hunter Local Land Services. If you would like to get involved with the New South Wales Dairy Farm Monitor Project, please get in touch with me, Sheena, Carter. If you're interested in understanding more about farm business analysis again, please get in touch or reach out to Dairy Australia or your regional development program as they offer great courses and resources in this area.
This month's show notes contain a full transcript and resources mentioned throughout this podcast, including links to the New South Wales Dairy Farm Monitor report, the Tocal Dairy Monthly Business Report and Justin Walsh's DRF symposium presentation from last year. We'd love you to share this podcast with your networks and feel free to send any feedback or suggestions for future episodes to email@example.com You can also subscribe to our New South Wales DPI Dairy Facebook and DPI Livestock Twitter feed, and view or subscribe to our quarterly DPI dairy newsletter using the links provided.