It has been assumed the only ones not making a loss are those carrying little or no debt.
It is a shame that more focus hasn’t been put on the significant number of farmers who, even though they are carrying plenty of debt, will still be able to at least break even this year.
With the average farmer carrying around $21kg/MS of debt, this equates to about $1.20kg/MS interest a year. Added on top of the average drawings of 60 cents a kilogram this gives $1.80 total.
As a result, farms need to be well under $3/kg MS for farm working expenses to have any chance of breaking even.
The latest talk of $3.50 for FWE just won’t cut it.
If you believe all the talk in the media you would think this was an impossible task.
So, as a means to provide some encouragement, and in no way boasting, to those out there looking for a way through the seemingly dire situation, we have been asked to share our experience.
When we bought our 332ham 250ha effective, farm in 2013 we had the chance to start from scratch in terms of what sort of farm system we wanted to implement.
On our previous farm, which we had owned for 11 years, we had, to some degree, gone down the intensification route.
We built a feed pad and bunkers, we were buying in a considerable amount of feed and upped the cow numbers.
It certainly felt like we were making progress.
Each year the production increased and there was a feel-good factor of seeing the cows munching away happily on the pad, even on a wet, muddy day.
However, the extra hours in the cowshed and on the tractor took a real toll.
If I wasn't feeding out I was dealing with all the extra effluent and constantly pushing the grass with urea and projib.
Of equal significance, despite the extra production, profitability was only on a par, even with the strong payouts, with the previous years when we had a practically all-grass system.
So, the decision was made to adopt a stocking rate of a relatively low 2.6 Friesians a hectare – 650 cows in total – on the new farm.
This was done for four key reasons.
Firstly, it was imperative to attract and retain good staff so milkings had to be kept to a maximum of two hours. So 650 was the maximum we could do in our 50-bail rotary.
Secondly, at this stocking rate it allowed us to grow 30 hectares of summer crops a year which means we are self-sufficient for practically all our supplementary feed. A small amount of palm kernel is fed to get minerals into cows during the calving period and the eczema season, through in-shed meal feeders installed by the previous owner.
Thirdly, wintering is a breeze at this stocking rate. It allows us to achieve a long lactation by calving early, drying off late and milking a few cows through the winter at a premium.
And fourthly and most relevant to this financial climate, it is such a sustainable and low-cost system.
It is sustainable because we don’t need to throw huge amounts of urea around anymore and at that stocking rate it does wonders for the numbers coming out of Overseer.
In terms of low cost, for the first eight months of this season the FWE are running at $2.25/kg on the production done to the end of January and we will comfortably come in at under $2.50 for the season.
This comes without scrimping on essentials like maintenance fertiliser, AB and wage rises for the staff.
We have a relatively high debt loading so the interest bill and drawings add another $2 on top of that to make total cash expenses of about $4.50.
With our net stock sales equating to about 60 cents kg/MS, our total income will be around $4.50 kg/MS at the milk price of $3.90.
So, we are confident that we will break even for this season.
I have to stress that we haven’t had to slash and burn to achieve this.
Sure, we had to postpone some capital expenditure but otherwise it’s essentially just business as usual.
What it does mean is that even at $28 a kilo of debt we can ride out the current cycle, however long that might last, hopefully without having to run to the bank for extra money.
The key factor to this low-cost system is the stocking rate which some people call low but I term appropriate.
It takes a bit of guts to go down this path.
Rather than achieving a squillion kg MS a hectare, you have to be content with about 1000 kg MS/ha.
Rather than doing 500-600kg MS a cow, you need to be content with 400.
When you go to your discussion group you'll probably be doing less than everybody else, so you have to stay mentally strong.
When the cows drop because of seasonal fluctuations, you have to resist the urge to ring 0800 MEALTRUCK.
We have found using this system a low-stress, low-footprint and rewarding way to farm.
And it is one that I would encourage farmers to at least consider, rather than just accepting that accumulating further losses is inevitable.
This way of farming is not new, it’s the way we used to farm and it certainly gave us prosperity for over 100 years.
Who knows how long the situation will go on for, especially if this is the new normal as some have suggested.
I'm certainly hopeful that it isn't the new normal but I believe that it would be foolish to assume otherwise.
But one thing is for sure, those businesses that are light on their feet and can quickly adjust will be the ones best able to adapt to the volatility that we all know is here to stay.
