John Mulvany, Focus Farm Facilitator
In early July, 70 farmers attended a field day at the Tallangatta Focus Farm to review how it was going in achieving Mark and Narelle Mc Donald's objectives since the project commenced in July 2011. It is key to remember that a Focus Farm is not a demonstration farm it's just a normal dairy farm trying to do things well enough to achieve the objectives of the business owners. In this case, the McDonalds, lessees of the farm.
The objectives and progress to date:
Better lifestyle: Mark has been on a trip to the USA and Narelle has been on a trip to Italy. Both holidays were paid for from cash flow, not additional borrowings. The family continues to be involved in local sport and Jock and Dughal are involved in the farm. In addition, the McDonalds have employed a full time staff member, Troy, so perhaps they will get a holiday together in 2012!
Reduce debt: Liabilities have only reduced by about $20,000 due to the business still growing. Livestock inventory grew by over $200,000 and the farm is now at a point where extra cows have to be carefully assessed. Equity in the business has grown to 78 per cent.
Better cash flow: Cash flow has still been tight, but whereas in previous years advances were required, this year it has not been the case. This objective still remains to be achieved.
Invest off farm long term: An opportunity occurred during the year and the group, together with Mark and Narelle, decided that it was not a good investment at this stage.
The Focus Farm, aided by the support group, is making progress but there is still work to do!
Issues that 'appeared' during the first year include:
- Reproductive performance of the herd (see Verity Ambler's article for more details). Essentially, the conclusion is that in a split calving herd, it's very difficult to achieve high reproductive performance without some form of synchrony and good effective bull power. Both of these will be in the mix for 2012-2013.
- Pasture renovation this received a very substantial focus as well, with Darren McCormick assisting the group. 173 of 246 hectares was resown in 2012. Perennial pasture now comprises 97 hectares, which has been an objective since the project started.
- Dennis Watson (DEPI) had a close look at the irrigation efficiency. Flood irrigation was more efficient than anticipated and the centre pivot less so, for various reasons. Dennis' work indicated that at $20 per megalitre, both the flood irrigation and the centre pivot proved to be profitable compared to buying in grain at $180/tonne. If the price of water had been $100 per megalitre, the flood irrigation would start to become marginal and at $150 per megalitre the centre pivot starts to become marginal. Given that grain prices will continue to be $220 in 2012-2013, it is very unlikely that the irrigation won't be profitable, particularly with a few 'tweaks' identified by Dennis and the Support Group. These include changing the flood pump from diesel to electricity, and fixing the blockage issues of the centre pivot.
The following table provides a snapshot of some physical and financial figures of the business in 2011-2012.
|Titled Areas Leased||259 ha dairy farm 154 ha adjacent out paddock||259 ha dairy farm 154 ha adjacent out paddock|
Stocking Rate (c/ha)
(112 ha irrigated and 72 ha dry)
(112 ha irrigated and 72 ha dry)
|Production (fat and protein kg)|
|Farm||167,468||216,755 (+ 29.4%)|
|Per cow||507||553 (+9.1%)|
|Pasture Consumed (t DM)|
|Per hectare||6.2 (* 8.1)||7.2|
|Per cow||3.5 (* 4.5)
* Includes inventory gain
|Supplements Fed (Purchased) t/cow fresh weight|
|Canola, EB, CS, CM||0.45||0.60|
|High quality hay||0.26||0.10|
|Total||1.96||2.70 (+ 38%)|
|Percentage supplement imported||21.1%||44% (+ 109%)|
|Production Net of Cost of Purchased Feed|
|Per cow||420 kg||425 kg|
|Per hectare||754 kg||905 kg|
|Solids per 50 hour person||48,208 kg||60,585 kg|
|$ paid and imputed – Total||$187,933||$235,550|
|Per cow||$569||$601 (+ 5.6%)|
|$ paid labour (excl McDonalds)||$47,173 (25% total)||$104,377 (+ 121%)|
|Growth Payment||$37,320 (22c/kg)||$31,039 (14.3c/kg)|
|EBIT (Business Profit) Includes||$253,589||$314,817 (+24%)|
|EBIT as per centage of ASSETS MCDONALDS' NET WORTH 'CASH' POSITION||$836,764
|$1,184,771 (+ 41%)
- The milk price received in 2011-2012 is higher than in 2010-2011 (in contrast to many dairy farms) because of the growth incentive, a high domestic incentive percentage and a better protein to fat ratio.
- Paid labour 'jumped' because Mark and Narelle are paying themselves as employees.
The following diagram indicates the financial position in regard to the key features of 'Cash' (the ability to pay all expenses and live), 'Tax Profit' which Ray Carty, (Mark and Narelle's accountant and Support
Group member), has done his best to legally minimise, and 'True Business Performance' or EBIT (earnings before interest and taxes).
Having reviewed 2011-2012, the August meeting of the support group focused on 2012-2013. The business went under the microscope (or perhaps the knife) in preparation for a reduced milk price environment and continued efforts to achieve the stated objective of improved cash flow in the future.
Specifically, the following issues were reviewed and generated intense discussion in the process:
- All cost categories for the previous year. Could any of these be reduced without reducing operating margin?
- Cow numbers the farm should milk and where that optimum position is, without introducing too much physical risk, i.e. importing too much feed. This also needed to be considered from a staffing and labour perspective and the facilities available. Combined, this is what is termed the POOP Position - the position of optimum operating profit!
The outcomes of this intense support group meeting will be reported next month. Thank you to Mark and Narelle and a great support group for the first 12 months. In addition, thank you to the sponsors of the project, Dairy Australia, Murray Dairy and the Gardiner Foundation.
If anyone would like copies of the notes from the field day, please email John Mulvany email@example.com or telephone 0409 935 578.