The low forecast milk payout is not getting in the way of Bryce and Kylie Baron continuing to grow their farming business. Forward planning and a robust farming system combined with the discipline to see it through mean the Wairarapa-based 50:50 sharemilkers are well-positioned to deal with farmgate milk price volatility.
It was a lesson they learned soon after making the leap to becoming herd owners. After several years as lower-order sharemilkers on the then 115ha platform owned by Patricia Smith near Carterton, the Barons became 50:50 sharemilkers in 2007-08.
At that time the property was highly stocked for the area at 3.3 cows/ha (380 cows in total). With just 15ha of the platform irrigated, high levels of supplement were fed out to combat the often wet springs and dry Wairarapa summers. The farm itself is nestled against the foothills of the Tararua Ranges. Although the average annual rainfall sits at somewhere in excess of 1500mm it is highly seasonal with monthly tallies of 300-350mm not unusual in August and September, quickly fading to low double-digits in January and February.
Warning bells were ringing for Bryce and Kylie after the 2007-08 season. Despite what was then a record milk payout approaching $8/kg milksolids (MS) the couple struggled to make a profit.
“The payout was high but we had probably the second to worst drought we’d ever had here and the farm working expenses blew out totally because we brought in all this feed,” Bryce says.
“We just looked at it and went this is never going to work.”
They took a closer look at the high input-high stocking rate system and realised if they couldn’t make a profit in a high payout year, a low payout season could spell disaster.
Another factor in their decision was the availability of a neighbouring block of land coming up for lease. The 45ha block had been a dairy farm although was no longer operated as one, and was handy to their milking shed. They had experience in making leasing arrangements work – leasing smaller blocks for growing young stock had enabled the Barons to build the equity to go sharemilking.
After running the numbers they took up the lease, in turn leasing it back to the farm owner for it to be incorporated into the milking platform. The development was the catalyst for a major system change. Rather than buying more cows for the expanded farming platform the decision was made to keep the same herd size – significantly reducing the stocking rate to 2.3-2.5 cows/ha.
The change immediately dropped $0.80/kg MS out of their share of the farm working expenses, taking them to about $1.80/kg MS.
A couple of years later they leased another 20ha that was also incorporated into the milking platform, taking the total area milked off to the current 180ha and the herd size settling at 420 cows.
The system changes worked, increasing the profitability of the operation for both the Barons as sharemilkers and the farm owner. In 2011 Bryce and Kylie were in a strong enough financial position to buy that first lease block and this year moved into a house they had bought on a small block adjoining the farm.
The quick turnaround in profitability gave the Barons confidence in the low-cost system they have been fine-tuning ever since.
Next season they have the opportunity to roll it out on another 80ha dairy farm they have leased nearby. Their current 2IC Scott Dormer will be taking the leap to 50:50 sharemilking on the block. They went with a 50:50 arrangement in favour of a manager or lower-order sharemilking agreement to both help Scott develop his own farming business and to add extra incentive for him to replicate their focus on controlling costs.
The philosophy of taking a long-term view underlies their business decisions and their drive to develop a resilient farming system.
They use accounting software CashManager to develop budgets and cashflows two to three years ahead, which are shared with their accountant and bank manager.
“We always do it on a low budget. You’ve got your break-even budget and then anything above that is a bit of cream on top,” Kylie says.
They use conservative production and milk payout figures – preferring to under-promise and over-deliver – and have worked out their business is viable so long as the payout is above $4.60/kg MS. Above that, they are in a position where they can comfortably repay debt.
“You’ve got to be prepared for the worst,” Bryce says.
“Volatility is pretty massive these days – it’s just part of the game, you can’t control that. You’ve just got to do what you can do and control what you can in your own backyard.”
For the Barons that meant significantly reducing their exposure to imported feeds back when they reviewed their system, relying more on pasture harvested off the milking platform and their leased support blocks. That strategy has taken on even more importance this season.
Not only did they find themselves dealing with a low payout, they were also dealing with the worst drought they had faced in their time on the farm.
Their system is geared towards dealing with a dry January and February, building average pasture cover through December and using 18ha of turnips planted by the end of October each year along with grass silage to get through.
This season the dry came early in December.
The combination of the early dry and the low payout meant the Barons had to make decisions early. The first one was they were unwilling to risk next season’s production to try to salvage this one.
Tactical decision making on the Baron’s farm is driven by mating and expected calving dates.
“You can’t go into the following season with a hangover. The cows won’t perform if they’re too light. We just want to restrict the damage of this season into this year now and then next year we’ll have all the cows in the right condition for calving and we can hit the ground running,” Bryce says.
The next decision was they did not want to buy in production by buying in supplement.
“We are a low-cost system – buying in feed just doesn’t suit it,” Kylie says.
They ran the numbers through the DairyNZ supplement price calculator and the reality was in the face of the low payout there weren’t a lot of options that made sense.
With feed supply tight because of the dry season and bought supplement not an option, the focus switched to reducing demand.
Tactical decision-making on the farm is driven by mating date and so, expected calving date. Normally operating a nine-week mating period – three weeks of artificial insemination followed by six weeks of bulls generating a 7% empty rate – this season had an eight-week mating period because management decisions needed to be made early.
Cows are identified by different coloured tailpaint as to whether they were mated in the first, second, or third cycle. This identification is maintained throughout the season to easily identify cows for other tactical decisions like culling, drying off and winter feed levels.
To make the most of the high beef schedule and to combat the dry season the culling plan kicked in early this season.
In a system that is already low cost, stripping out expenses is difficult although the Barons did reduce principal repayments early in the season. They carry higher wage costs than the DairyBase benchmark because they place a high value on family time and having a life outside farming. The couple have two children and Bryce also operates a kick-boxing gym in Carterton.
“The farm has to work around the family – that’s why we’re doing it,” Kylie says.
“You have got to have that balance. We made the decision right at the beginning – it might take us a little bit longer to get to our goal but we want to enjoy the now.”
The higher staffing ratio also means no employee works in excess of eight hours a day.
In terms of other potential savings they had already made the decision to drop maize silage out of their system, unhappy with the cost. That was the only imported feed in the system that did not come off the support land under their control. The hole has been filled with another lease block and sourcing some winter grazing nearby for the early calving cows.
The Barons also have an aggressive regrassing programme, renewing 20% of the platform annually although costs are reduced because they grow their own grass seed on some support land at a cost of just $0.89/kg. In keeping with their philosophy of restricting the damage to a single season they have proceeded as normal with the programme.
The focus has been on keeping tight control of expenditure with monthly monitoring against the budget keeping things on track.
Like every other dairy farmer in the country, Bryce and Kylie are hoping for an improved milk payout next season. Their cashflow forecasts tell them the first half of the season will be tight, with any retro milk payments likely to be minimal at best. Their low-cost system puts them in the position of being able to weather the storm.
• The Baron’s are a case study farm for DairyNZ’s Tactics for Tight Times programme.
