Northern Irrigation and Southern Riverina
"You miss 100 per cent of the shots you don't take." Wayne Gretzky
Inside this issue:
- Focus your business on farmer health and safety this year
- 'Watts in the dairy' energy field days
- The building blocks for good laneways
- Monthly reminders
- What's On
Understanding your business to 'make sense' of investing and operating decisions
Phil Shannon, DEPI Cobram
All farm businesses can be successful – but the degree of success is dependent on management skills and external influences – things that we generally have limited control over. Managers can position the exposure of business resources such as land, water and cows to certain combinations of externalities, for example changes in rainfall/irrigation allocation, milk price or purchased feed costs. The degree to which the business is exposed to variability in these externalities can significantly influence profit.
It is a nice ideal to think that we can have a truly flexible farming system – but flexibility is reduced due to the larger capital investments being relatively immobile in a dairy business. The manager needs to understand the factors that influence the externalities and design a system that will balance the profit and risk equation for them.The system - loosely described as the combination of people, physical resources and financial position - can take many forms. The managers of successful systems have the common ability to:
- understand and implement profitable business and feeding principles – investing and operating;
- understand and interpret (as best they can) the volatility in the external environment; and
- adjust the system to allow them to manage their level of risk.
Defining success is important as this will be different for each business. Generally, a business is a success if it:
- covers operating costs (herd, shed, feed, overheads, paid labour);
- covers loan repayments (pays for use of capital that isn't owned by the business);
- pays the owners an acceptable salary; and
- produces an acceptable return on the capital invested in the business.
Some managers willingly forego potential profits when conditions are favourable (e.g. high milk price relative to low feed price) in order to reduce their exposure to the opposite conditions. This is an important concept to understand. Many discussion group debates are about trying to identify who has the right system, rather than raising the level of the discussion to ask 'with a given set of external conditions which system has the potential to make the most profit?' The discussion can then look at risk – how exposed is the business if external conditions are less favourable?
Industry data demonstrates there are farms that perform well under a wide range of conditions, and the return on investment achieved is more than competitive with other investment options. Some of this return comes from investing gains (increases in value of assets over time) and some comes from the profit from operating the assets.
Most farm managers want to know how these businesses achieve this level of performance. When data is analysed, you need to look at the external conditions to understand the performance. An example is milk price volatility. Some businesses are geared towards a high production system and are comfortable to rely on purchased feed. With good management this system will perform very well when the milk to purchased feed price ratio is favourable. However, the system is high risk when the ratio is not favourable.
On the other hand, the system geared towards reducing exposure to higher purchased feed prices will be less exposed when the same ratio is less favourable. They will also find it more difficult to benefit from the 'high' when the ratio is favourable. This challenging discussion is usually had with the approach of being right or wrong, rather than focussing on learning. It's about understanding risk.
With collective data we run a risk of assuming history will repeat itself – i.e. on average, the external conditions of the past will repeat themselves – on average - into the future. Collective data can be very useful but the real power is in understanding the individual data sets to see why some businesses perform better under certain external conditions. Again, it is about understanding rather than looking for the solution.
So how do you choose what is right for you? You need to understand the principles and concepts that inform decision making rather than looking for an answer or copying a farm that performed well. Most farm businesses evolve over time. The manager makes small decisions that tweak the current system based on their understanding. An example is increasing herd size through replacements. At some point the tweak may require a bigger change such as the construction of a new dairy to manage more cows. The key to success is to plan your changes and check that they allow you to balance your profit and risk.
Below is a concept diagram that can be used as a basis to discuss the profit and risk balancing act. The aim is to think about a range of systems
and to describe what you think a system would look like with certain externalities. For example, if you think you can achieve a favourable milk to
feed price ratio over the life of your investment, what type of system would you design?
In extremely favourable conditions you would logically milk more cows and become reliant on more purchased feed as the profit potential would be high. If you thought that the ratio would be poor, you would likely reduce your exposure by having a system less reliant on purchased feed.
We see many of these types of businesses, they often focus on 'making the most of home grown feed', and don't chase 'high production per cow'
targets. Both systems can be successful but neither is well positioned to manage significant variability in both milk and feed price – and the more extreme the system, the more inflexible it will be.
If we consider a drought year when feed price sky-rockets, the farm that relies on purchased feed has little room to move without selling cows (and historically, by the time you know this the capital value of the cow will drop). In high milk price years the farm that is less reliant on purchased feed will find it difficult to ramp up production without purchasing cows.
This creates a great discussion topic – how much can you flex your feeding and production level without changing cow numbers? The key message is not that a 'middle ground' system is right – it is that the right system will depend on the variability in the externalities. Your investments should reflect your opinion on what the conditions will be over the period of the investment and the exposure to risk you are willing to take.
Concept of profitable dairy farming
It is worthwhile looking at your dairy business as two separate businesses – an investing business and an operating business. In reality they impact on each other, but thinking about them separately can help you make better decisions. The investment business is about the capital (or less flexible) items you invest in.
These include relatively inflexible investments like land (and the rainfall potential that comes with it), infrastructure (dairy and other improvements)
through to more flexible investments like stock (milking herd and replacements) and mobile plant. Although, whether mobile plant should be
classed as an investment could be debated. The operating business in this definition is about how you manage the investments to generate profit.
Your investment business will be about how you interpret future external conditions. You may choose an extensive system with the aim of a high proportion of feed from home grown sources, or an intensive system where there is a higher dependence on purchased feed. With either system you need to understand the types of investments that you make. Some investments are appreciating assets like land and water. Some are depreciating items like plant, equipment and perhaps stock – depending on how you view replacements.
It is important to think about the investment types and what role they play in your business' performance. Consider the level and type of risk your investments expose you to. A discussion on investment decisions could generate some quality information. There isn't room to go into detail here, but an example may help. Let's use the example of building herd size through replacements and follow a change that happens on many farms. The farmer, who gets most operational decisions right, has had a good run with replacements so has the opportunity to build herd size. The herd grows, as does demand for purchased feed (the farmer is already optimising the land asset – high home grown feed consumption per hectare).
This can be an opportunity to grow if the milk to feed price ratio is favourable, so the farmer can generate more replacements and more profit. The farmer has now made an investment decision with the extra cows (replacements aren't free!), but we need to follow through. What happens if the farmer keeps these additional cows for the following season – but the milk to feed price ratio is less favourable?
The farmer is now more exposed to the change in the ratio. They are more reliant on purchased feed and are making a smaller margin on all feed due to the drop in milk price. The easy response would be to just change the operational feeding decisions and miraculously maintain profit in the less favourable milk to feed price ratio conditions. The reality is that this investment decision is now limiting the business' operational flexibility. There can be marginal cows that have pushed the system beyond the point where it achieves optimum profit.
As stated at the start – this example is not providing a solution or recommendation – it is to start a healthy discussion to improve our understanding. The question to be explored is 'how do I know that my investments are balanced – do they allow me to achieve my preferred balance between profit and risk?'
When it comes to the business' operations, success is a reflection of the skills of the operator. The investments are made now they need to generate profit. This is a simplification but the key task of the operator is to understand and apply business and feeding principles in a range of external conditions.
Regardless of the chosen system, you need to be good at marginal decision making. The operator needs to be confident to continually answer the question: 'How much can I reduce input costs before the operating margin is worse off?' or 'If I increase input costs will the operating margin be better off?'
Part of the decision-making process will also involve an understanding and use of the concept of 'opportunity cost'. One example of this is 'which feed source should I use - grain, hay, other?' The operator can spend the same amount of money (opportunity cost) on a range of feed sources, but not all will deliver the same benefit.
With all decisions, timing is crucial. Good operators have an ability to make the right decisions at the right time, acknowledging there is always an element of the unknown, e.g. timing of sowing. If you go too early and the break doesn't come it could be costly, but the opposite can also be true. Good operators make the best decision they can with the information they have and they review their decisions with the power of hindsight to build their knowledge.
Many of the issues and topics above are raised and discussed as part of the Feeding Pastures for Profit program. The program starts with a focus on managing feeding with the current investments that the business has chosen but many groups go on to discuss investment opportunities.
To conclude, it is good to ask who controls your business. Are you driving the system or is the system driving you? Do you understand operating and investing, or are the two confused in your decision making? A good starting point is a business health check with a review of past performance as a basis to drive a discussion on the 'principles' of profitable farming systems.
Use your advisor to explore if your performance is less than expected because your investment didn't match the externalities or your operating decisions weren't quite right – or a combination of both. If you look for the answer without understanding the principles, you will often look for a new answer every time conditions change.
If you understand the principles, you can use them to make sense of any future conditions and make good decisions that balance profit and risk. A business health check could include a review of:
- Amount of debt – use your money – or the banks money?
- Amount of debt – exposure to interest payments – cash flow can cripple!
- Type of debt – long or short term – appreciating or depreciating items? Cash flow!
Exposure to feed costs (in relation to predicted milk price trend)
- Relatively cheap feed per cow (in most cases direct grazed feed)
- Proportion of direct grazed home grown feed to re-processed home grown feed)
- Relatively expensive feed/cow (How much purchased feed with little cost control?)
Balance of labour type and cost
- Is it owner/operator labour where there is flexibility in tough times?
Management skills = good operator = getting the fundamentals right!
Do you understand your business? DEPI Victoria is considering piloting a four-day workshop to help farm managers:
- understand how to interpret historic business performance,
- understand the key 'externalities' impacting on performance (lack of flexibility)
- understand how to use principles and concepts to explore changes to your business
- use a real case study to 'make sense' of changing investing and operating decisions
For more information, please contact Phil Shannon, telephone (03) 5871 0600.
Focus your business on farmer health and safety this year
Helen Chenoweth, DEPI Warrnambool
As many farmers transition from a hectic autumn into the winter period, now is a good time to examine how work is being done around the farm. During busy times focusing on tasks can be more challenging than usual, leading to mistakes and possibly accidents.
The most serious and commonly claimed injuries in the agriculture, forestry and fishing sector through 2007-2008 included muscular stress due to manual handling or repetitive movement (29 per cent); being hit by a moving object (25 per cent); and falls, trips and slips (22 per cent).
Most common injuries leading to fatalities in 2005-2008 included vehicle accidents (45 per cent); being hit by falling objects (11 per cent); and being trapped by moving machinery (6 per cent) (www.safeworkaustralia.gov.au).
These statistics can be confronting and all these injuries and accidents occur on dairy farms, emphasising the need to be extra careful, especially during busy times.
Another issue of farmer health and safety that is often overlooked is having a healthy work-life balance. Work-life balance is the relationship between your work and the commitments in the other areas of your life and how they impact on each other. There is no right balance as each person is different and the balance can alter over time as personal situations change.
If you employ staff, there are significant benefits in ensuring employees achieve a healthy worklife balance such as lower staff absences, attracting skilled and motivated employees (being an employer of choice), increasing employee satisfaction and a more motivated and committed workforce.
A work-life balance benefits the employee by allowing more time to support family, having a balanced and enjoyable work life, having time to participate in the community, a greater ability to manage (and feel in control of) their workload, better personal health and less chance of being overworked leading to burnout.
So, achieving a healthy work-life balance will benefit both employer and employee as well as the overall farm business. Managing the everyday jobs around the farm with an enhanced focus on safety will also benefit the people involved in the business as well as the ultimate success of the operation.
For more information on how to achieve a worklife balance either from an employer or employee stand point or to gain useful information on farm health and safety issues, please visit www.worksafe.vic.gov.au.
Q: Why did the baker hurl an insult at the bread dough?
A: To get a rise out of it.
Q: A butcher is 6 feet tall and wears a size 12 shoe. What does he weigh?
Q: What do bananas learn in gymnastics?
A: The banana split.
Q: What are the small rivers that run into the Nile?
A: The juve-niles!
Powered up by 'Watts in the Dairy' Energy Days
Scott Birchall, Dairying for Tomorrow.
Murray Dairy and the Central Regional Network held three 'Watts in the dairy' field days in early April. These events were aimed at giving farmers strategies to reduce the energy consumption of their existing dairy plant and how to prioritise which of the various energy saving technologies is most suitable for their farm when considering future equipment purchases for the dairy.
Each field day was hosted by a farm that had conducted an energy assessment of their dairy plant. The farms differed in size and the type of
The field days were facilitated by two of Victoria's most experienced practitioners in the area of dairy shed energy use; Gabriel Hakim from AgVet Project and David Klindworth from DEPI Victoria.
Darold Kindworth set the scene with some general energy saving tips to ensure getting the best performance possible from existing equipment. Darold pointed out that as the bulk of dairy shed electricity use is from cooling milk and heating water, efforts to improve efficiency should be concentrated on these areas. Plate coolers should be able to achieve a milk-out temperature within two to three degrees Celsius of the water supplied to it. If the gap is bigger than that, you need to investigate why by starting with the following questions:
- Is the flow rate for the water supplied at two to three times the maximum milk flow?
- Have the plates been cleaned to remove any
- build-up that might reduce heat exchange?
Using the coolest water available to supply the plate cooler is a key factor in reducing the load on your vat's refrigeration system.
Darold also reminded us, the heat removed from the milk by the refrigeration system can be recovered and used to pre-heat water for the hot water system. Commercial heat recovery units are available but you should have your technician investigate your specific situation before you purchase one.
Gabriel Hakim explained the energy assessment completed for each of the host farms. Energy assessments start with an audit of the plant's various electrical components and matches the expected power use to the previous year's energy bills.
Gabriel completed an energy assessment on Allanby Pastoral's 720 cow dairy at Bamawm. Brendan Martin manages the dairy and was keen to have the assessment done. "We'd been concerned about how well the cooling tower had been working, but we were surprised to find a difference of almost eight degrees between the temperature of the milk coming out of the plate cooler and the water supplied" Mr Martin said.
"Gabriel identified $6,000-$7,000 dollars in annual saving for not a lot of cost, which is a great outcome."
The recommendations for Brendan included working to improve the performance of the plate cooler and the cooling tower, as well as installation of a heat recovery system. The hot water system was also set too high for the vat – apparently a common problem and an unnecessary waste of energy.
Everyone attending the field day went home with a pair of adhesive strip thermometers and instructions on how to fix them on their plate coolers as their first step on the path to reducing their own energy bills. Anyone who would like an information pack from the field days is encouraged to call Murray Dairy on (03) 5833 5312.
These events were sponsored by the Future Ready Dairy Systems project with funding from the Australian Government Climate Change Research Program and Dairy Australia.
The Building for Good Laneways
Now is a great time to review your annual maintenance plan which might include some plans for laneway construction or renovation work around the farm.
The foundation and surface layers of a laneway require materials that withstand the threat posed by water and constant use. Paying more for good quality materials may save money in the long run once you have factored in costs of lameness and mastitis, extra maintenance or laneway replacement.
Materials - Foundation Layer
Topsoil is not suitable for use in the foundation layer. The material removed from the table drains may be used provided it is not topsoil. Moist subsurface soil is usually suitable unless you are in an area which has dispersive sub-soils which are unstable when wet.
The material dug out to make effluent ponds may also be suitable for laneway foundations if not required for dam construction. Soft clay is unsuitable for use in foundations unless stabilised with other materials. Hydrated lime evenly spread and uniformly incorporated to a depth of 125 millimetres, will allow soft clay to become stable once compacted. Cement can also be used as a stabiliser in foundation layers.
If the material available does not create a satisfactory foundation it is possible to use a geotextile, an industrial fabric used in earthworks to cover the shaped base layer before adding the top layer. While porous and allowing the water to pass through, geotextiles hold soil and rock in place and will prevent the surface layer from being pushed into the foundation layer, particularly from wheeled traffic. The geotextile will distribute applied loads over a wide area. However, be aware that this could be an expensive option.
Materials - Surface Layer
Surface materials must form an impenetrable barrier to water and not be harmful to cows' hooves. The ideal material includes a mixture of gravel, clay (15 – 30 per cent) and sand. The fine particles fill the gaps between the larger particles, binding the material together. It also gives the surface a long wearing and smooth finish. Correctly crowned, this material will shed water and protect the foundation.
Incorporating 0.3-1 per cent cement into the clay capping mixture can help stabilise the surface and prolong its life. Well rounded gravel less than 25 millimetres in diameter is preferable to large stones as they can be kicked aside, leaving the surface susceptible to water penetration and damage.
Crushed limestone can make a suitable material for surfacing. It is generally spread as a 50-100 millimetre layer and needs firm compaction. Sand alone does not make an ideal surface it is abrasive on cows' feet and washes away too readily.
A temporary fix for rough or muddy areas includes using materials like woodchips or sawdust. Woodchips are used in many laneways in South Australia to provide a softer surface for the cows to walk on.
Regular laneway maintenance helps to prevent problems such as lameness and costly, major repairs. Any maintenance program should focus on both keeping the surfaces repaired and maintaining effective drainage.
Potholes should be filled and compacted as they occur and it's a good idea to deal with drain blockages quickly.
Surfaces should be graded annually. Use a tractor blade to cleanout the edges and drains, as a build up of grass and manure can affect drainage.
For more information please contact Greg O'Brien on (03) 5624 2288.
- Be prepared for the amount of weeds that could germinate with new pastures. Many weeds will be easier to control when at the seedling stage.
- Inspect emerging pastures for damage from insect pests such as red legged earthmite or lucerne flea and take action before rather than after the emerging pastures are eaten.
- Grazing can be undertaken once new pasture wont pull out of the ground when pulled up by hand. For example the leaves tear off rather than the roots pull out of the ground. Aim to graze just before the sward reaches canopy closure and ensure the stock don't over graze.
- For established pastures, pasture growth rates are slowing down. Rotations need to be lengthened to suit growth rates.
- Condition score. It is much more efficient to put condition on cows while they are still milking than when they are dry.
- Start planning your drying off strategy now.
- Check the young stock to make sure they are getting enough feed through the winter so they keep growing.
- Cash flow position - A cash flow budget is the most reliable way of seeking a picture of the estimated bank account movement over the period from May to October. Arrangements can then be made well in advance to discuss options with your bank. Don't leave cash inflow and outflow to luck or pressure.
- Now is the time to look into tax planning for the year with the end of the financial year approaching.
Centre Pivot and Lateral Move Irrigation Course
Due to flooding, the Centre Pivot and Lateral Move irrigation course that was planned to be held in Numurkah in late March was postponed and will now be held on 29 and 30 May, 2012.
The course is suitable for farmers who own or are considering the purchase of a centre pivot or a lateral move system. It is also suitable for service providers who want to improve their knowledge in this area.
If you would like more information or are interested in attending, please contact Rob O'Connor at DEPI Echuca as soon as possible, telephone (03) 5482 1922 or 0408 515 652, or email email@example.com.
Farm Chemical Users Course
Spray safe has been developed to provide the required training to obtain an Agricultural Chemical Users Permit which is required to legally purchase scheduled chemicals. Date, location and time: May 7 and 14, Cohuna Neighbourhood House, 9am to 4pm. - Other dates available on request.
Please contact Wilf Reuther NCDEA, telephone (03) 5824 5515 or 0429 001 398.
Farm Chemical Update
If your Farm Chemical Users accreditation is five years or older, this course will renew your currency, and may be required when you are involved in a QA program.
Courses run on request.
Please contact Wilf Reuther NCDEA, telephone (03) 5824 5515 or 0429 001 398.Any feedback or comments are welcomed by the editor Leah de Vries (03) 5833 5223.
For previous issues of the Dairy Bulletin (and the former Target 10 Communicator) go to our website www.depi.vic.gov.au
Published by the Department of Environment and Primary Industries, Farm Services Victoria, Dairy Services Branch, May 2012.
© The State of Victoria, 2009
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