Farmers at Reporoa, Atiamuri, Bennydale, and Broadlands opened their account books and farm performance for analysis in the recently finished Tomorrow’s Farms Today study. Its objective was to assess each farm’s economic resilience and environmental performance, to discover the “sweet zone” where it operates at maximum production efficiency and profit (return on capital) with minimum risk should there be nitrogen limits put in place.
“We have been able to demonstrate that increasing milk production and intensity, to grow the business with greater inputs, is not linear and that there is a hypothetical sweet zone of cow liveweight per unit area that best balances production, profit and risk,” Headlands agribusiness consultant Alison Dewes said.
The study identified the most resilient farms, those having the lowest environmental risk on an “environmental scorecard”, and then looked at the operation of those low-risk farms also having consistently high returns on total capital, even when a hypothetical 20% decrease in milk price was applied.
Dewes, who ran the study with Headlands colleagues Rachel Mudge, Jesse Bolt, Alanah Bunyard, and Brenna Barber, and who recently submitted a Master of Science thesis based on the project, said the analyses showed that economic risk increased when there were more costs, as in buying extra feed or installing environmental fixes, without a linear (parallel) income gain per hectare.
“But when you allow for 4.5 tonnes of home-grown feed for each cow during the year and your farm is growing 10t/ha of pasture to be consumed, as averaged in this group for a normal year, then you know you can grow enough pasture to feed 2.2 cows/ha (10t ÷4.5t).
“Then you know the right stocking rate for a small risk, high profit farm system in that environment,” Dewes said.
When a milk price less than $6.50/kg milksolids (MS) was modelled, the farms with more home-grown feed eaten per cow were still more profitable and had lower environmental risk.
Dewes said many farmers instinctively thought a higher stocking rate equated to a higher profit potential, but the only strong correlations with profit were the low cost of production/kg MS and the cost per cow of management and staff.
The project compared farms operating with an annual nitrogen leaching rate of less than 30kg N/ha, which applied to half the farms in the study, and it was evident that the most profitable among the low leaching farms were those with stocking rates averaging 2.65 cows/ha.
The range of stocking rates for all 25 farms was from 2.4 to 3.3 cows/ha and averaged 2.85 cows/ha , which was slightly higher than the 2.75 cows/ha average for Central Plateau dairy farms and well below the 3.3 cows/ha in the central Waikato region.
One of the farmers, Bryan Gibson, was told six years ago his farm could carry 3.1 cows/ha but it was now typically stocked at 2.35 to 2.4 cows/ha and had record production with an extra 1.6t/ha of pasture feed available instead of being consumed as part of the maintenance diet for an extra half cow/ha.
Looking at profit, the study found the most resilient farms averaged a return on capital from 7.9% down to the Central Plateau average of 4.6%, based on four-year average values based on $6.08/kg MS.
‘…increasing milk production and intensity, to grow the business with greater inputs, is not linear …’
When based on a $5.50/kg MS payout the return on capital average for Central Plateau farms dropped to 3.6% while the study group range fell to between 6.3% and 3.6%.
In her thesis, Dewes said the more resilient dairy farm can allow for the unexpected, such as higher feed price, lower milk price, and harder seasons.
“This study reinforced that the more intensive dairy systems carry more cow bodyweight/ha, are dependent on more bought-in feed and can perform comparatively strongly in years of high milk price.
“These systems can also be more vulnerable, however, with increased environmental risk requiring advanced mitigation strategies such as herd homes, standoff facilities, supplementary feeding infrastructure, and advanced effluent management systems.
“They also require greater capital investment that can lead to increased debt, which is compounding business risk.”
Within the study group of farms the cost of production for the higher profit farms was in the range of $3.10 to $4.22/kg MS while the Central Plateau average was $4.57/kg MS.
It was evident in the study that the greatest influence on return on capital amongst the variables tested was the cost of production/kg MS rather than other measures such as total MS/ha, gross revenue/ha or stocking rate.
“More stock and more milk did not reflect a greater likelihood of profitability. However, at a modest milk price, an ‘optimal stocking rate’ is more likely to be of significance in ensuring consistent returns, as shown by the stronger performers.”
Dewes saw increasing challenges being faced by agricultural “growth agendas” and new farm systems having to demonstrate “high resource use efficiency, minimal environmental risk, and robust economic performance to endure in what will be more challenging and volatile conditions”.
One of the challenges was to reduce nitrogen leaching. The range of loss on the studied farms was 15-48kg N/ha/year with an average of 31.4kg N/ha/year. The average for Central Plateau dairy farms was 39kg N/ha and in the central Waikato 36kg N/ha. This equated to an average annual loss of 4155kg N/farm in the study group of farms on typically free-draining pumice soils. The average nitrogen loss for central Waikato farms was 4095kg N/farm/year.
The three-year project ended last month with a field day on one of the participating farms and an open meeting at Otorohanga to review results. A similar project for upper Waipa River hill farms was also reviewed at its two-year mark.
Several farmers in the Tomorrow’s Farms Today study group want the analyses to continue but funding from DairyNZ and the Ministry for Primary Industries’ Sustainable Farming Fund has finished and further funding would be required.
The project was also supported by VetPlus, regional councils, agribusinesses, iwi, and farmers.
