The Stoltes are in their fifth year of 50:50 sharemilking on a 500-cow, 165ha effective farm between Masterton and Carterton in Wairarapa, owned by Clarence’s parents.
The farm has challenges. Stony soils are great in the winter but dry out quickly in the summer and make ploughing impossible. On the platform and the 130ha of nearby leased support land, only 10ha can be cultivated.
About 90ha can be irrigated by two centre pivots although strict conditions on the 40 litre/second water-take consent mean supply is often interrupted. In the dry 2012-13 season, irrigation was turned off at Christmas and not turned on again that season.
To manage some of the climatic risk, and minimise cow wastage, the Stoltes have a 165kg milksolids (MS)/day winter milk contract. This means they and their two full-time employees calve about 380 cows in spring and 80-100 in the autumn, with about 40 carry-overs milked through the winter.
The Stolte’s farming system has evolved over the years to cope with those challenges and now consistently ranks as one of the most profitable in the Dairy Systems Monitoring benchmarking programme. For the 2013-14 season, the whole farming enterprise’s operating profit was calculated at $7058/ha, allowing for management wages, leased runoff, and changes in feed inventory).
To drive that result, Clarence and Elise focus on two key factors – cost of production and pasture harvest.
Controlling the cost of production has long been a focus for the business. Clarence and Elise did two seasons as variable order sharemilkers on the farm before the 50:50 arrangement started. Their first year as sharemilkers in 2008-09 was trial by fire – the contract weighed up their costs as contractors against the likely income at $7/kg MS, calculating out at a 16% share. Then the milk payout dropped to $4.75/kg MS, plus $0.45 dividend.
“We were basically going to be farming for love,” Clarence jokes.
They were looking down the barrel of making a loss and generating a negative equity situation, starting the season with no debt but ending the season owing the bank.
‘They see our books every year, and we see their books every year. If we see only half of the business, how can we keep striving to drive costs down?’
Instead they took a hard look at their budget and managed to cut expenditure by more than half, generating a cash surplus.
“The next season the milk payout went back up but we kept to that same philosophy and it really paid dividends.”
Key to their success has been the adoption of zero budgeting techniques. Rather than simply rolling over the previous season’s financial budget with a bit of tweaking here and there, the Stolte’s start each season at zero expenditure and add specific, researched expenses required by their system. Clarence thinks the simple technique can be a game-changer.
“People always carry over their last budget. While there’s accountability for that budget in some form, what is that budget actually based on? It almost gives people free rein.”
He uses the example of animal health costs to illustrate the concept.
“You get the vet to send through a health plan with costs, and you ask yourself why would I need to spend more than this? It’s got everything I need, full stop – that’s where that cost ends. Then you are not tempted along the way to try these things that tend to come up the driveway. You just say no, it’s not in the budget.”
Clarence says they start with the costs they cannot avoid and then focus on expenditure that generates a strong return. Final additions are the extras that may not have a financial payback but are still important – like taking employees out for dinner.
The Stolte family, from left, Charlie, 4, Clarence, Olivia, 5, Elise, and Adelaide, 2.
Vigilance is required to keep on track. Elise regularly updates their farm budget using Cashmanager Rural software. Senior staff – those directly influencing on-farm spending – are kept in the loop with Elise breaking down the figures to help interpret expenditure on a monthly or bi-monthly basis.
“You need buy-in from your staff to make it work,” Elise says.
The farm system itself is based on maximising pasture harvested. The Stoltes are targeting a low input, grass-based system. Seasonal variation – largely related to how many days the irrigation can be operated – means actual supplements fed vary year-by-year.
In 2013-14, on the back of a mild winter and growthy spring, the Stoltes fed only pasture during lactation. Yet the season before, 2012-13, with the early loss of irrigation water and a dry summer and autumn, pasture made up three-quarters of the diet. In a quirk of fate, the Stoltes won the Best Medium/High Input System in the 2014 Dairy Business of the Year awards, based on the 2012-13 figures.
Clarence estimates the median pasture harvest for the milking platform would be about 11.5 tonnes drymatter (DM)/ha, but the range would be about 9.7t DM/ha to 13t DM/ha. They average 500kg DM/cow of supplement for the milkers, mostly grass silage harvested off the leased support land with some maize silage.
“The goal is always can we harvest more pasture off the land that we’ve got – do we need to use supplements to make that happen?”
Clarence says they do not feed supplements to chase production, but to maximise pasture harvest.
“The decision around how much supplement we are going to feed is based around our system and not around payout. We’ve got a system, we know what that is, that system costs X to run – and that’s how we run it.”
They are chasing bang for the buck with their supplements.
‘The next season the milk payout went back up but we kept to that same philosophy and it really paid dividends.’
For example, with grass silage the focus is on getting good quality, something Clarence believes is largely within their control through good management. Harvesting the silage is effectively a fixed cost and getting it done at the right time means a better quality and ultimately more valuable feed. Ensiling poor quality pasture costs the same as good quality pasture – only the end result is different.
To get that good result the Stoltes do their own mowing and raking, and work at maintaining a good relationship with their long-term contractor.
Cows are wintered on the adjacent support block, most recently on kale and balage. This season they will trial a small area of fodder beet.
With a low-cost system template, any change is carefully reviewed. Simplicity is valued.
At 26 years old, the couple are leveraging their low-cost system along with their industry recognition as 2010 Hawkes Bay/Wairarapa Sharemilkers of the Year and their successes in the 2014 Dairy Business of the Year, to propel themselves to farm ownership in 2015 – if the right property comes along.
Clarence somewhat sheepishly acknowledges that he has a tendency to be in a bit of a hurry. So far it is paying off.
Growing the pie
Cost of production and pasture harvest are key components driving the Stolte farming system, but return on capital is another major contributor – both theirs as 50:50 sharemilkers and also the farm owners’.
“They have an asset, they would like a return.”
Clarence’s parents own the milking platform but have never farmed it themselves. Poultry farmers in Wairarapa, they initially purchased the dairy farm as a place to spread their chicken manure.
Transparency between the two business entities is a guiding premise.
“They see our books every year, and we see their books every year. If we see only half of the business, how can we keep striving to drive costs down? We’ve got to try and grow the whole pie rather than simply trying to divide it up differently,” Clarence says.
“We’re actually trying to drive towards better profit for the whole farm. At the end of the day, the sharemilking contract cuts it.”
While calculating the return on capital can be difficult depending on the exact figures used, Clarence believes they are on the right track as evidenced by the farm owners’ ability to retire debt.
“The way I see it we’re doing a good job because the farm owners are just knocking out debt year-on-year with a sharemilker on, and are able to leverage and take on debt with other things because they know this farm just keeps paying down debt – and that’s only taking half the milk cheque.”
Accounts put together as part of the 2014 Dairy Business of the Year awards through Red Sky benchmarking put the return on capital for the drought effected 2012-13 season at 7.5%, first equal amongst the award finalists scattered around the country.
Capital demands from the farm owners are minimised to keep their costs down. One key example is the current farm dairy, a basic 28-aside herringbone set-up with Protrack autodrafting.
“People have said to us you are milking 20 rows of cows, you need a new shed. The first two things I think about – one, a million dollars for a new shed and I can’t sell the old one so it’s a straight cost and there’s a capital write off for the value of the old shed. Two, there’s no extra income and I can’t see where the labour saving would come from as it is already a one-person shed.”
Key figures:
Owners: Wim and Roelie Stolte
Sharemilkers: Clarence and Elise Stolte – 50:50 sharemilkers
Area: 165ha effective milking platform
Support block: 130ha leased adjacent to platform – youngstock, wintering, silage
Herd: 500 cows – two-thirds Friesian, one-third Friesian/Jersey
Rainfall: 900mm
Production: 224,240 kg MS (2013-14)
Supplements: Average 500kg DM/cow – grass and maize silage
Dairy: 28-aside herringbone with Protrack autodrafting
