The Business of Dairy

Highest Profit in NSW Dairy Farm Monitor in 10 Years

January 01, 2022 Season 1 Episode 8
The Business of Dairy
Highest Profit in NSW Dairy Farm Monitor in 10 Years
Show Notes Transcript

This year marks the tenth year of the Dairy Farm Monitor Project in NSW and the most profitable we have seen in that period with an average operating profit or Earnings Before Interest and Tax of $2.07/kgMS which translated into a 4.9% RoTA. This project involves a detailed physical and financial analysis of dairying businesses in NSW and saw 41 farms participate this year, the highest number to date. Participating farms are anonymous and receive an individual farm report.

The Department of Primary Industries manage this project in NSW with funding and support from Dairy Australia and this month we see Sheena in the hot seat being interviewed about some of the drivers behind the results by colleague Zita Ritchie who is a Dairy Development Officer based at Wollongbar in Northern NSW.

Useful resources related to this podcast:

NSW Dairy Farm Monitor Annual Reports

NSW DFMP Interactive Report

The dairy business Report – Tocal Dairy

This podcast is an initiative of the NSW DPI Dairy Business Advisory Unit – visit for further information and resources.

It is brought to you in partnership the Hunter Local Land Services

Please share this podcast with your fellow farmers and colleagues and feel free to contact us with suggestions or comments via this email address thebusinessofdairy@gmail.com

Further NSW DPI Dairy channels to follow and subscribe to include;

NSW DPI Dairy Facebook page

DPI Intensive Livestock Twitter feed

NSW DPI Dairy Newsletter

Transcript here

Produced by Video Lift

The information discussed in this podcast are for informative and educational purposes only and do not constitute advice. 


The Business of Dairy


Episode #8 Transcript – “Highest Profit in NSW Dairy Farm Monitor in 10 Years”

 

Sheena Carter: Welcome to the Business of Dairy podcast. I'm Sheena Carter, development officer with the New South Wales Department of Primary Industries dairy team. This year marks the 10th year of the Dairy Farm Monitor project in New South Wales and the most profitable we have seen in that period. Despite the challenges of severe flooding in much of the state during the year. An average operating profit, or earnings before interest and tax of $2.07 per kilo milk solids was achieved, which translated into a 4.9% return on total assets. 

 

The project involves a detailed physical and financial analysis of dairying businesses in New South Wales and saw 41 farms participate this year, the highest number to date. Participating farms are anonymous and receive an individual farm report. The Department of Primary Industries manages this project in New South Wales with funding and support from Dairy Australia. And this month, I'm in the hot seat being interviewed about some of the drivers behind the results by my colleague Zita Ritchie, who is a dairy development officer based at Wollongbar in northern New South Wales. 

 

Zita Ritchie: Okay, well, Sheena thanks for having me on the podcast. It's great to be here and in the hot seat interviewing you today. So I guess today we're here to talk about the Dairy Farm Monitor project, as you mentioned. And I was wondering, I guess for those maybe listening, could you just give an explanation of what the Dairy Farm Monitor project is for those that maybe aren't aware of it and then we can go from there? 

 

Sheena Carter: Sure, thanks Zita, it's nice to be on the other side of the microphone. The Dairy Farm Monitor project is, it's a national project that happens in all the dairying regions around Australia. In Queensland they also do it as part of their QDAS program, which they've been running for probably 20 years or more. New South Wales and the other regions, we partner with Dairy Australia to deliver this project, and it involves looking at business analysis of dairy farms throughout the state. So it's a physical and financial analysis of these businesses. These businesses are anonymous. They are very generous in that they open their books up to us where we see, you know, work through their financials and also their physical data. So things like land areas, herd size, cow numbers, feed purchases, production, silage making, all that sort of stuff. So we get a very comprehensive physical and financial report on the business. 

 

Zita Ritchie: And how many farms do we have in the project this year? 

 

Sheena Carter: Well, yeah, this year is fantastic. It's the tenth year that we've run the project in New South Wales, which is a major milestone, and we've got 41 farms in the project this year, which is up from 28 when we first started 10 years ago. So there's certainly been growing interest in farmers getting involved, which is great to see. 

 

Zita Ritchie: Yeah, that's excellent. It's really good to see that support there. Why is there that strong interest from farmers to participate? 

 

Sheena Carter: I think there's a number of reasons. I think these days we really are running very complex businesses. Much more complex than they were perhaps 20 years ago, 15–20 years ago. They're generally bigger businesses, and there's a lot more variables to manage and a lot more variability in our operating environment, whether that's pricing or climatic conditions. So the reports that the farmers get, and they can get, you know, the same thing through DairyBase – the online tool – if people want to use that. But it gives them some really good information about their business in terms of, you know, are we profitable? You know, just knowing that you've got cows that have fantastic milk production. So what? Is it profitable milk production? And this really helps clarify that, and it helps people look at their business and identify areas where they're doing really well and perhaps where there's opportunity to do better in the business. But also over the last probably five to seven years, we've had a big focus in New South Wales certainly, and also around the country, on farmer skills in understanding their businesses through farm business management workshops, which have been developed by Dairy Australia. And they've really helped people improve their financial knowledge of their businesses and financial management of their businesses as well. So I think it's a number of things that is driving this interest. And it also, you know, these businesses, when they're sitting down and talking with financiers, be that bankers or other outside investors, it gives them good, solid evidence and numbers to talk about their business and how it's performing. It's factual, and it really does help that conversation and I know that there's a number of farmers that have participated in the project that certainly do use their reports in that way. There's lots of benefits, and it's really good to see that interest growing across the industry and there's other ways of doing it. I mentioned DairyBase, farmers can enter their data into DairyBase or, you know, get someone to assist them to do that. In New South Wales, we've got the Business Support Services project where you can get a consultant to come and sit and help you put that information in and interpret the reports. And Dairy Australia have also developed a snapshot tool, which is a simplified version of DairyBase, where the physical information required isn't as detailed and onerous as it is for DairyBase. So look, there's a number of reasons why it's happening. 

 

Zita Ritchie: Oh well, it's hugely beneficial for industry, isn't it, Sheena for New South Wales? And I guess in addition to that, you know, what do the participating farms get out of the project, like for themselves? I mean, it's great because we can use this data as an industry. It's really, really rigorous and great data. So what's in it for them to participate? 

 

Sheena Carter: The benefits to the participating farmers is: a) they get this report provided to them at no cost. We provide a data collector to come out and sit with them and get the information in and verify it. We do a lot of toing and froing between the data collector and the farmer, and checking between myself and the data collector and then Dairy Australia and the datasets that we've got and then validation. So there's lots of rigor to it. So they get an individual farm report each year, and you know, the longer they're in it, the more information they've got about their business looking back. They also get a copy of that information shared with them through their DairyBase file as well. We have eight of the original farms that signed up ten years ago still participating, which is really good to see.

 

Zita Ritchie: Wow, that's a good dataset for them. 

 

Sheena Carter: Yeah, absolutely, well and truly, it's fantastic. But as you mentioned, look, the real other benefit is that benefit to industry where we look at the aggregated data each year and it helps inform trends that we're seeing in the industry. So trends around input prices, milk pricing and we see how farmers manage the conditions that they're presented with in each of those years and try and generate the performance that they generate – all the factors that are at play there, so it is interesting. And the other thing is the data from Dairy Farm Monitor also sits behind DairyBase as comparative data. 

 

Zita Ritchie: Yeah, that's great. So that can be really used as kind of the numbers behind the averages behind when you can plug in your own individual numbers into DairyBase so you can compare against the Dairy Farm Monitor  average. That's great. 

 

Sheena Carter: Yeah, you can. And look, I guess the thing to me, if I'm a farmer, the real benefit in doing DairyBase or Dairy Farm Monitor is comparing my own results over time and seeing how my own performance is changing based on the decisions that I make each year, more so than looking at the average dataset. But it is there for sure. 

 

Zita Ritchie: Yeah, no, that makes sense. Well, I guess then that maybe brings us to the next step of jumping into the results for 2020–2021. So, you know, we're looking at this on a financial year basis, so the year just been and you said it's ten years of the project, which is amazing. So tell us all about it, Sheena. So what's the tenth year of the Dairy Farm Monitor results show for the industry in New South Wales? 

 

Sheena Carter: Look, it is incredibly positive. It's the best return or the best, sort of, profit position we've seen the dataset in in those 10 years. And I would just like to context and set the scene before I jump into the numbers. I guess we're looking at a year in which we've had generally, and I will say generally, generally more favourable conditions then, you know, the previous, certainly the previous three years where we had extraordinarily tough conditions, but generally it was a much milder summer. So, you know, we had better grass growing conditions, less heat stress for cows, it was much better conditions for cows out grazing in paddocks. The caveat is that we did have some devastating floods in autumn of the 2021 financial year, and they were, you know, catastrophic for some farms in terms of the damage that occurred and we have seen that affect performance in our dataset. 

 

In the north particularly, we had a really wet December and then it kind of dried out a bit, but the soil moisture profile was generally pretty full. And then come autumn, we saw incredible volumes of rain along the eastern seaboard and it generated, you know, one-in-100-year flooding conditions. So obviously that had severe impact in terms of a number of things. We saw livestock losses in some cases. We saw farms, particularly in the north, having to draw down on fodder inventory, which… that accumulated and not to sort of have to feed out at that point, but there was no grass for some farms to graze because it was all under water. Consequently, there were impacts on cows with lameness and mastitis. And of course, there's all the follow-through implications with milk, decreases in milk production and longer term concerns that you sort of get that come with that. So it was a tough environment during that autumn period. And also it meant that some farms were delayed in their sowing – their normal autumn sowing program. You know, some farms weren't getting their autumn pastures in until June, which is really late and obviously you haven't got as much feed to graze if that's the situation, you don't have those additional months of grazing. So there was that negative impact, but generally better seasonal conditions. 

 

Yeah, in terms of the operating conditions, in terms of trade, we saw that we've still got relatively strong milk prices. So for New South Wales, they're still the strongest milk prices in the 10 years of the Dairy Farm Monitor project. Obviously, this is a supply and demand issue, and we also still have these high livestock prices for, you know, cull cows the market is incredibly strong and also people selling into the export heifer market. So that's really helped the performance this year and also the softening of commodities such as grain and purchased fodder. We've seen a good reduction in those, concentrates came back by about 17.8%. They sort of averaged around $456 a tonne dry matter and hay came back about twenty 22.6% to sit around $315 a tonne dry matter. So that has really helped drive this performance. 

 

Zita Ritchie: Yeah, and that combined, you know, I think you mentioned to me about purchased feed costs overall had also gone down. So you mentioned the concentrate and hay prices there. So what kind of decrease did we see in purchase feed costs compared to previous year? 

 

Sheena Carter: Yeah look, there was a dramatic decrease in purchased feed costs. They came back by about 30%. So we're talking about purchased feed costs in terms of dollars per kilo milk solids. So there's a number of factors at play here. Firstly, obviously, we've got the lower costs of actually purchasing those feeds, but with the better operating conditions and climate, more grass, we saw a larger percentage of home grown feed in the diet as well, so less purchased feed having to be fed to many of the herds. Thankfully.

 

Zita Ritchie: Yeah, which is great, isn't it, compared to the previous year? With those kind of changes in terms of trade and the conditions what did it mean for profitability for those 41 farms in the project overall for the year? 

 

Sheena Carter: Yeah overall, it was, in terms of operating profit or EBIT in absolute dollar terms, it was $471,437 per farm – an average, and that is average – there's a large range. And this translates to a $2.07 per kilo milk solids operating profit, which is the highest we've seen in the 10 years and it's up from a $1.07 sorry, $1.05 in the 2019–2020 financial year. 

 

Zita Ritchie: Wow. So it's basically doubled. 

 

Sheena Carter: Yeah, just about. And you know, I do want to caveat there is a range of performance in there. We did see some farms with a negative EBIT – four out of the forty one, and this is due to a number of factors. For some of those, it's the impact of floods on their business. And, you know, some of the other ones, it's a scale thing. So I mean herd size really, where we've got smaller businesses and when we're looking at operating profit, we’re factoring in some non-cash costs, so things like depreciation and imputed labour and they tend to be impacted a bit more in those areas, it doesn't necessarily mean they had a negative cash situation because we're talking about non-cash costs in the business. 

 

Zita Ritchie: I see what you're saying. So, I mean when you talk about EBIT and this year it is $2.07, you said, I mean is there industry targets around EBIT that Dairy Australia place or levels of EBIT that we should maybe, as an industry, be aiming for per kilogram of milk solids? 

 

Sheena Carter: There are. Dairy Australia has set some industry targets and again, look, I think these are targets. Every business is going to be different and really they need to understand their own business to understand what sort of operating profit or return on assets might be a sustainable target or a realistic target for their own business. But in terms of an industry target as a whole, Dairy Australia has set a target of 50% of farm businesses achieving an average EBIT or operating profit of $1.50 per kilo milk solids over a five year period. Or, you know, we're looking at that sort of translating into a 5% return on total assets managed. 

 

So what we've seen this year is above and beyond that $1.50 on average. Our return on total assets was 4.9%, which I guess people might think a $2.07 EBIT should translate to something higher than 4.9% but we need to be mindful that a lot of our farms in Dairy Farm Monitor are on the coastal strip of New South Wales, where we see quite high land values. They’re not necessarily a reflection of what you might expect to be agricultural pricing because they're in regions where either there's competition from lifestyle blocks, urbanisation or other industries that are impacting the value of land. So probably that's why we're not seeing that return on assets higher than that 4.9%. 

 

Zita Ritchie: Yeah, I see. So we've spoken about EBIT, so operating profit and return on assets. I guess when you're looking at the results in Dairy Farm Monitor, for those that are listening today, what are other kind of key points that you'd like to draw out of the data? I mean, it's so comprehensive, there's so many things in it, Sheena. What else, that stands out from the year that's just been, I mean we've had challenging kind of seasonal conditions in some parts with flooding, but strong milk price, good average EBIT, you just talked about return on assets. What are some of the other things that you'd like to kind of draw out there? 

 

Sheena Carter: Yeah look, we could really talk all day about, or pull apart Dairy Farm Monitor in a whole day and still not get to the bottom of it all. But we need to be mindful that we do have relatively good terms of trade at the moment. Cost of production did come down the 2020-2021 year. It was about $7.94 per kilo of milk solids, which is down from $8.91, and there's lots of things at play in that, but one of the main reasons is that reduction in purchased feed costs. So I think we need to be mindful that, you know, in the 2017-2018 year cost of production was lower still, it was $7.71 per kilo of milk solids, and that year we only managed an operating profit of $0.34 per kilo of milk solids, and that was on an average price of $7.58 for milk price. So I think my main message here is that we really need to be making the most of the opportunities that we've got currently. We've got strong livestock prices, strong milk income prices. These things are cyclical and generally they're out of our control. So we need to be making the most of either paying down debt, and many farms are in this situation where we had several years of drought that really impacted the financial position on their business. So if we can, we need to be paying down that debt. We need to be doing the upgrades to the dairy or tracks or whatever it might be in the business, reinvesting these profits back into the business, on farm or off-farm, whatever you choose. And with these good conditions, we need to be building our fodder inventory. So putting away hay and silage for the next drought, that's inevitably only going to be around the corner. We might not think so with all this rain we're getting at the moment, but we need to be preparing for the tougher times ahead. So don't get complacent. And if you've got your own numbers, have a look at your cost of production and try and identify areas where you can tidy things up a bit and set the business up to be able to weather the next challenge because it is just around the corner. 

 

Zita Ritchie: That's a good thing to keep in mind, isn't it, Sheena, going forward? Like you said, it's kind of planning ahead for a rainy day or a dry day – maybe that's more the case. You've mentioned differences between, slight differences in the results between the north and the south. Do you want to touch on anything that's kind of stood out in the data between the northern and the southern farms in the project? 

 

Sheena Carter: So we generally report on the data in a number of ways. We report on New South Wales as a whole, but we also do split the dataset in sort of half, and look at the north part of the state in the south part of the state. Our split is really reflective of both, I guess, climate but also farming system. So in the north, we tend to have farms that are smaller than, you know, smaller family farms than what we see down in the southern regions, and we also tend to see lower production per cow. And you know, there's various impacts on these businesses because of that, particularly with some of our non-cash costs like imputed labour. Imputed labour costs tend to be higher in the north than in the south. So if we want to look at the 2020-2021 year for the north and the south separately, if we looked at average operating profit, it was a positive story in both parts of the state. The north had an average EBIT of $1.59 per kilo of milk solids and the south was $2.62 per kilo of milk solids, so pleasing from both sides. 

 

Zita Ritchie: No, that's excellent, isn't it? It's interesting to kind of understand the differences in the systems between the north and the south and how that kind of translates into what we see in the data. 

 

Sheena Carter: Yeah, and I guess to add further to the discussion around the differences, you know, predominately New South Wales is supplying the liquid milk market. So we tend to have a higher average milk price than perhaps we see in Victoria and some of the other southern states. In the north they also, particularly further north, the further north you go, the impact of Queensland milk prices starts to play into our pricing. And conversely, in the south, there's a bit more exposure to those southern state’s milk pricing. So we tend to see a lower average milk price in in the southern dataset. The other thing is around feed costs, sort of purchase feed costs, that tend to be, and this will depend where you are in the south, but they tend to be slightly lower in the south than in the north, and this is really, you know, a proximity to market. There's that freight component that you’re generally adding to get grain particularly, but also hay if it's having to be purchased into some of those northern regions. So that does add to feed costs in those parts as well. 

 

Zita Ritchie: Yeah, that makes sense. Yeah thanks, Sheena. So I mean, looking ahead, I mean, those farmers that you surveyed this time around, what's the sentiment of the farmers based on the results and what they're kind of thinking for the year ahead? How’s everyone feeling?

 

Sheena Carter: As part of Farm Monitor we survey the participating farms about their sentiment for the year ahead. So we collect the data on farms, really around sort of late July, August, so that's when the questions are being asked, so we need to bear that in mind, and we're asking it about the year that they're actually in, but the current financial year ahead. So in this case, it's the 2021-2022 financial year, and look, on the whole sentiment is very positive. So we asked them a number of questions. We asked them about anticipated business profits, and all farmers surveyed expected their business profits to either improve or remain stable. So that's fantastic. I think, you know, if you talk to other people that aren't necessarily part of Farm Monitor we’re seeing that positivity. There’s still challenges, but in general, it's really positive. We asked them about milk prices and anticipated milk production and all bar one farmer expected milk prices to remain strong and their milk production levels to, sort of, be maintained, or maybe a slight increase on where they are at the moment. 

 

And we also ask about input prices on farms. So what they think their costs are going to do on farm, which generally the response was for those input costs to remain stable with the exception of fertiliser. And we're well and truly seeing that play out. We're seeing very high fertiliser prices and I do a monthly report for Tocal Dairy and from, I think it was May last year, their fertiliser prices have increased by 80% for urea, I'm talking about. Yes, so we are we are seeing that and that's obviously impacted by a number of factors that, you know, it's a world market that we play in when we're purchasing fertilisers and that's all being driven at that level and supply and demand and supply chain issues. So we are seeing that but look, I think sentiment is really positive and we saw a number of farms in the dataset that have either purchased more land or are looking at purchasing more land in coming years and farms taking on additional leased land as well, which you know, to me that's a positive signal. 

 

Zita Ritchie: Definitely. That's great. That's great to hear. I mean, there's a lot of different things, a lot of different things to factor in, manage and, kind of, look towards isn't there with all of these things? So I mean, Sheena, I mean, in summary, so bringing it all together as we kind of get towards the end of the session, I mean, are you able to summarise in a few key words, you know, about this year and what we've seen, and also maybe where farmers, those that are interested in finding out more about the results or are interested in the project, where they could go to next to get any more information? 

 

Sheena Carter: Yes, sure. Look, the really short summary is a great year, a fantastic year that has taken a long time to come, and I think most farmers, not everyone, but most farmers would be very happy with their performance for the 2020-2021 year, that had, you know, not too many curveballs thrown in front of them. So at $2.07 operating profit on average across New South Wales is really, really pleasing to see, you know, acknowledging that there are still farmers out there that are having to juggle the flow on impacts of the drought years that they've seen and also the flood conditions. But a positive year. And let's hope we see another one for the 2021-2022 financial year. That would be fantastic because we need a string of them, I think, to fully recover. 

If people want to access the annual report, we generate an annual report each year, that's available on our DPI dairy website and also on Dairy Australia's website, where you can see the 2021 annual report, but also previous financial years. We have a dairy breakfast that will have occurred by the time this podcast comes out, but there will be a recording available if people would like to look back on that. 

 

We've got an interactive report now on our DPI dairy website so people can look at a snapshot of the farm performance, either at a farm level or at a state or regional level. So I'd encourage people to have a look at that. And then I think also just a call out if more people are interested in being involved in Dairy Farm Monitor, please get in touch with me. I'm always looking to expand the number of farms in the project. I do need to balance it and have even distribution around the state in terms of farm numbers but if I can take more people in a particular region I certainly will. Otherwise, look there’s DairyBase and Dairy Australia’s snapshot tool to help people understand their performance. And we do have the Business Support Services project, which Dairy New South Wales are coordinating, funded by New South Wales DPI coordinated by Dairy New South Wales, so if farmers are interested in that please reach out to Dairy New South Wales or Subtropical or Murray Dairy. 

 

Yes, and thanks, Zita. Thanks for playing host. 

 

Zita Ritchie: No problem. Well thank you, but yeah, I mean, there's a lot of work that goes into this project, Sheena, and thanks for pulling all that data together. It's not an easy task and it's been going on for months, but it's really great data and it's good to see the results and hear about it in the podcast and it's great that there's so many resources out there that people listening can go and follow. So yeah, jump onto the DPI dairy website and we can follow up with any farm business management tools or the results are available on there, that's great. But thanks very much, Sheena, and hopefully people listening have got something out of today and we'll look forward to the next instalment. 

 

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. And thank you to Zita for hosting this month. The series is also brought to you with funding and support from the Hunter Local Land Services. This month's show notes contain a transcript of the podcast and a link to the Dairy Farm Monitor annual reports and the New South Wales Dairy Farm Monitor Interactive Report available on the New South Wales DPI dairy website. If you are a New South Wales dairy farmer and would like to access some one-on-one support to assist you with DairyBase reports, please contact your Dairy New South Wales, Murray Dairy or Subtropical Dairy office. 

 

We'd love you to share this podcast with your networks and feel free to send any feedback or suggestions for future episodes to thebusinessofdairy@gmail.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.