‘Sub-4’ farming softens low-payout impact

When Ngatea dairy farmers Michael and Megan Webster describe something on the farm as “sub-4” it’s meant as a positive comment.
It’s their acknowledgement of an initiative, change or saving that will help keep costs down; to bring their farm working expenses (FWE) below $4 for each kilogram of milksolids (MS) produced.
“It’s what we say when walking around and know something is working well. It’s either sub-4 or 10 out of 10,” Megan says. She’s a chartered accountant who has worked in that role for Thames-Coromandel District Council for the past seven years and is a co-owner with Michael of Webster Farms.
They bought their 40% share of the family farm in 2012 when farm budgets were conservatively based on an income of at least $6/kg MS.
“We have acquired a tidy mortgage, big and tidy, so it’s essential to maximise profit and not just (rely on) production for profit.”
In their first year the payout, including Fonterra’s share dividend, again topped $6 and the following year hit a new peak of $8.50.
But then the slump hit and dairy farmers were compelled to look for ways to produce milk more efficiently.
DairyNZ figures show the ultimate payout of $4.65 for the past year, ending May 31, was covering an FWE of $4.13/kg MS for the average dairy farm.
But when interest and rent ($1.39), tax (25c), drawings (65c) and a cash surplus (31c) for debt repayment or investment were added then the payout was well short of the breakeven price of milk.
For the current year the breakeven is slightly lower at $5.70/kg MS but the average farm will only be receiving $4.75/kg MS in terms of farm income, including retro payments from last season and dividends.
The job now is to “make more from less” and for Michael and Megan a strategy to cope with the lower payout is there for all to see after their first year in the spotlight as the P3 Focus Farm.
In return for receiving advisory services through the Hauraki Plains farmer group P3 Dairy Trust, their progress and results have been available in open reports emailed each week by DairyNZ to more than 480 subscribers.
At the end of the first year about 70 farmers attended a field day to look at the financial impact of a payout that was almost half that of the previous year.
“It had hurt us, and obviously it is hurting everybody,” Megan says. Their gross income was down by $402,000 despite a 5% increase in milk production and costs being trimmed to soften the blow.
Despite a cow health setback in spring because of a lack of magnesium and the dry spell lasting two months after Christmas, they managed to increase milk production from their 612 cows to 212,285kg MS – 10,617kg MS ahead of the previous year – but the farm still took a financial hit.
At the outset their Focus Farm strategy was to increase production and feed conversion efficiency in order to increase profit.
While the plan to produce more milk more efficiently remains in place, including the growth of more grass and less reliance on imported feed, the imperative now was to cut costs as well as increase production.
Michael walks the farm every week for a visual assessment of pasture cover that’s put into an update of the farm’s feed wedge.
“Our over-riding goal is to increase profitability and for that to happen we need to grow more grass.”
Since last autumn one-third of the farm has been resown and a further 10% undersown for denser regrowth on a farm where70% of pasture was about 40 years old and although persistent was short on both quality and quantity.
An estimate based on milk production shows the cows have eaten 10.5 tonnes of grass a hectare. Their pasture renewal, planned for the whole farm, aims to increase this to 13t/ha/year which would let them increase the stocking rate from 2.9 cows a hectare.
Already the extra pasture density has prompted them to buy 18 extra heifers.
“I walk the farm on my own and Wayne (Stachurski, P3 project manager) will walk a third of it each week with me. At the end of the day, I have to make the decisions,” Michael says. He is keen for his farm staff to help make the calls on grazing management.
The aim is to walk their cows into a pre-grazing cover of 2600kg drymatter (DM)/ha and walk them out of an evenly grazed residual of 1500kg DM/ha, which in itself would lead to a saving on mower and tractor costs when there’s no need to mow down residual grass.
“Looking at the new grass now, the cows are grazing it easier and they’re learning there’s no point waiting for a truck load of another feed to turn up because it’s all-grass and chicory supplemented only by some palm kernel.”
As part of the extensive pasture renewal Michael had 20ha of chicory sown for the first time last year for the dual purpose of a summer feed crop and a break crop for sprayed-out ryegrass that would be resown next autumn.
The chicory’s tap root offers more persistence in dry conditions and its harvest – by the cows – doesn’t require the machinery and handling costs needed for maize that was previously grown for silage in 10ha each year.
“Chicory has been a huge success. It’s been a key to getting cows through summer in a profitable way.”
Turnips were also dropped as a summer crop because they offer a high yield in a tight area – not enough for extensive pasture renewal plans.
“We want to sow Italian ryegrass into chicory crops areas that can be across several paddocks and break-fed for the whole season (early September to mid-March) until it’s time to sow the new grass.”
Megan says the 290t of maize taken out of the system has saved $72,000 a year – half the maize being grown onfarm at a cost of $12,000 and the balance bought off-farm for $60,000.
The costs for ensiling, labour and fuel for feeding out were also a consideration.
Michael says he doesn’t dislike maize “but we are fine-tuning pasture management and the over-riding goal in terms of increasing profitability is to grow and harvest more grass, so that’s where our focus is.”
The saving on maize has gone into other initiatives, such as buying $53,000
of palm kernel that last summer proved very useful for getting the cows through two dry months and extending their lactation.
This year they have contracted early to buy 240t of palm kernel at $220 a tonne, which is a saving of almost $10,000 on current prices, because a feed budget showed the need for that tonnage throughout the year.
In previous years they had used 180-210t of palm kernel and last year that soared to 253t to counter the dry period.
P3 Trust’s farm project manager Wayne Stachurski says one of the knock-on benefits of increased pasture quality is only 18t of palm kernel has been used so far this year, not 60t as budgeted.
This in turn has enabled 10t of palm kernel to be sent to the grazier who is looking after their rising two-year-old heifers.
“The big one is feed. The farm is still in transition in terms of pasture quality but visually the change has been huge.”
“A year ago there were gaps from tillers dying but now, with good grazing management, we are seeing thicker and healthier pasture that’s replacing bought-in feed and saving on grazing costs.”
Up to $110,000 was paid for a year’s grazing of young stock off the farm and wintered cows but this season the calves are staying on the farm to eat new pasture and chicory, which saves about $50,000 in grazing fees.
DairyNZ farm advisor Willy Burnell says other farmers are interested in the outcome of keeping the weaners and dry cows on the home farm.
“There’s extra chicory planted for that purpose and while there’s a few little subtleties around managing calves on chicory it’s not a major issue and I think this will be a good exercise.”
DairyNZ says the average dairy farm’s feed supply takes a 27.8% slice of total operating costs, which is almost as much as the 28.2% spent on labour.
Other expenditures are for maintenance and running costs (16.2%), animal health and breeding (13%), depreciation (5.1%), fertiliser (4.8%) and overheads (4.8%).
On the Webster farm there have been various ‘sub-4’ savings to bring last
year’s FWE down to $4.35/kg MS, which was a good fall from $4.67 the previous year.
From June 1 to October 31 this year the FWE was at $4.01/kg MS but this is forecast to drop to $3.47 for the year, excluding interest, debt repayment and tax, when milk production reaches their 233,000kg MS target.
As well as savings on feed supplements and grazing costs there’s been a deferment of drainage work to save $15,000 but on nitrogen fertiliser (urea) and lime there’s an extra $9000 budgeted.
Animal health costs were reduced by scheduling just two herd tests, instead of the usual four tests a year, to justify dates for cows going once-a-day milking and being dried off.
There’s a saving in Michael metrichecking the cows himself but veterinary blood tests have been increased from one to three a year, at drying off, start of calving and pre-mating.
Michael and his staff are weighing the calves and heifers every six to eight weeks to track their progress and enable proactive decision-making and treatment.
There’s a saving in early culling of about 5% of the herd “because we did the maths and it shows we can get more milk by taking out those cows that are performing well below the average”.
Two items not on a list of changes for farm efficiency are the dairies – a 32-bail rotary built in the 1970s and a similarly aged 26-aside herringbone – that function well despite not having automated add-ons.
“If we had a million dollars to spend, we would pay down a good chunk of mortgage to show the bank we can pay off debt … so they will lend us more money,” Megan says.