The final scoreboard for the Yannathan Focus Farm



By Matt Harms, ONFARM Consulting

The highly successful Yannathan Focus Farm, Redan Partners, has finished, and it is time to review the results of the two-year Focus Farm process. A final Open Day will be held at some stage in a ‘post-Covid19’ Gippsland, when groups can once again gather face to face.

The goals of this Focus Farm were set in the middle of 2018, at the commencement of this round. A quick review of these goals, and what outcomes were achieved are summarised below:

  1. Production: lifting production profitably, to 1kgMS per kg liveweight. Outcome: the herd is a medium-size cross-bred herd, averaging 475kg liveweight and this was verified by cattle sales dockets. Production in 2018/19 was 470kgMS/cow (100% of liveweight) and in 2019/20 was 503kgMS/cow (106% of liveweight)- an excellent result.

  2. Pasture: minimising imported feed and lifting pasture consumed from 7tDM/ha in 17/18 to 8tDM/ha in 18/19 and 9tDM/ha in 19/20. Outcome: in 2018/19, pasture consumed was 8.2tDM/ha or 3.8tDM/cow, and in 2019/20 the pasture consumption was 11.3tDM/ha (with around 2tDM/ha of this in a carry-over stack of silage) or 4.1tDM/cow. These results were achieved with around 1.2tDM/cow pellets fed. An excellent result.

  3. Calving: stay as a single, seasonal calving herd with no induction. Outcome: the herd continues as a single spring calving herd, using no calving induction and has two years in a row achieved an empty rate of around 12.5%. 

  4. Equity: grow the equity in the business for the partners involved and ensure Redan is a financially stand-alone entity. Outcome: the partners have had cashflow issues from time to time, particularly in year 1 when heifer rearing costs were high and Evan, Dean and Bec had relatively low shares of total equity. But as their animals became a bigger portion of the milking herd, equity grew and this has allowed Dean and Bec to take on a lease farm in their own right using their herd of cows grown through Redan. Evan is now a majority partner in Redan.

  5. Capital: to investigate and assess capital investment options on their merits and make informed decisions for the business going forward. Outcome: no capital investments of significance took place during their time as a Focus Farm.

Let’s take a closer look at the physicals and financials for the two years of the Focus Farm, side by side:

 

Key Physicals

2018/19

2019/20

Milking area

174

174

Cow numbers at peak

376

395

Production total litres

kgMS

2,182,222 litres

176,617kgMS

2,441,690 litres

198,566kgMS

Production per cow kgMS

Per kg liveweight

470

100%

503

106%

Production per effective ha

1015kgMS

1141kgMS

Pasture Consumed tDM/ha

 

tDM/cow

8.2 (no carryover fodder)

 

3.8

11.3 (2tDM/ha or 350tDM in stack)

4.1

Grain fed (tDM/cow)

1.15

1.19

Fodder purchased (tDM/cow)

0.14

0.25

Total labour (FTE)

Cows/FTE

kgMS/FTE

2.9

130

61,189

3.3

120

59,340

 

 

 

Key Financials

 

 

Milk price paid $/kgMS

$6.12

$6.95

Herd costs ($/kgMS)

$0.77

$0.90

Shed costs ($/kgMS)

$0.15

$0.10

Feed Costs ($/kgMS)

$2.80

$2.70

Cash overheads ($/kgMS) incl paid labour

$1.32

$1.40

Total labour cost (paid and imputed) $/kgMS

$/cow

$1.28

 

$601

$1.27

 

$638

Farm Working Expenses ($.kgMS)

$5.04

$5.12

Non-cash overheads ($/kgMS)

$0.29

$0.24

Cash surplus (dividends to partners and retained cash reserves)*

$120,000

$309,504

EBIT total

$/kgMS

$190,274

$1.08

$606,945

$3.06

Return on total assets %

3.4

10.9

*the cash surplus that remains must cover the individual partner’s borrowing costs.

It is fair to say that the results achieved over the two-year Focus Farm process have been fantastic, and 2019/20 was a ‘cracker’ of a year. The milk price was strong and season excellent, although it should not be forgotten that winter and early spring 2019 were poor and extremely wet. 

But equally, the results in 2018/19 were strong with a very high grain price and tough seasonal conditions (extremely dry summer and no autumn).

What are the key learnings from the two years of performance above?

  • Good levels of profitable production underpin strong financial performance.

  • Cost control, even when milk prices are strong, will help to generate strong profitability.

  • Fancy feeding and unnecessary inputs do not drive profit. Sticking to the basics and doing them well does drive profit.

  • Pasture consumption helps drive profitability.

  • The big picture settings of this farm business (cow type, stocking rate, calving date, feed inputs) match this farm and help drive profit.

  • A single, seasonal calving herd with the right cow type and strong fertility is profitable, is sustainable and can be maintained in our region.

  • A group of wise-heads guiding a farm business with the goals of the farm business in mind can help to deliver strong results.

What was the change/growth in equity of the partners over the time of the Focus Farm?

Each of the partners contributed different levels of starting equity. Noel and Ann Campbell contributed the bulk of the herd and day to day machinery. Dean and Bec Fincham-Turner, and Evan Campbell contributed fewer cows and no machinery. 

A decision was made early in the development of Redan Partners that Noel and Ann’s cow numbers would decrease over time as Dean, Bec and Evan’s numbers grew. The minor partners would accumulate the young stock, which over time would replace Noel and Ann’s cows. This meant that the costs of the replacements and financing of their cows would be funded by Dean, Bec and Evan initially from outside cashflow, as their initial equity percentage meant that returns from the Redan dairy business (dividends) were low.

In the early years, cashflow was tight, but manageable, but the medium term outlook was that equity growth (in cow numbers increasing) would result in a significant growth in net worth. By the end of the Focus Farm project in July 2020, Dean and Bec had enough cows to start dairying in their own right on a lease farm nearby. Evan had sufficient equity to buy additional cows to replace Dean and Bec, and he jumped from being the smallest equity partner at the start, to being the larger for the start of the 20/21 season.

The table below shows the change in equity and the approximate costs of getting to that end point:

Partner

Starting Equity pre-Focus Farm (July 2017)

Equity at start of Focus Farm (July 2018)

Total operating costs for young stock and joining costs for herd over the two years of the Focus Farm

Total dividends received over the two years of the Focus Farm

Equity at end of Focus Farm (30th June 2020)

Change in equity + dividends+ cull sales - costs over time of Focus Farm

% change in equity

Noel and Ann

$456,000

$401,000

$50,980

$294,686

$395,771

$233,679

51.2%

Dean and Bec

$185,300

$187,000

$147,374

$168,490

$245,648

$130,822

70.6%

Evan

$88,000

$101,000

$105,902

$90,050

$130,581

$52,937

60.2%

Notes: cow values have been held constant over the two years, but in fact have risen. The equity does not include carryover fodder held at 30th June 2020.

The table above shows that the model used at Redan, despite being complex, was a means of seeing young people being able to build equity in a herd over a relatively short period of time, especially when coupled with strong operational performance of the farm business (as shown in the dividends column). This was the original intent of the partnership, and it was successful.

Essentially, Dean and Bec increased their equity by $130,822 and Evan increased by $52,937, when costs, dividends, cull sales and change in stock numbers were all factored in. Whilst Noel and Ann’s equity share was declining, they still had an increase in equity of $233,679 over the two years. This was due to the strong operational performance (and therefore dividends) of the farm business. With lesser performance, the results may have been considerably different.

The model is complex, and it was said by quite a few of the support group members, that it was too complex. The structure was also complex for taxation purposes and anyone embarking on such a model should seek strong financial and taxation advice prior to establishment. There are other methods of achieving similar outcomes (unit trusts, sharefarm arrangements and the like), so seeking a model that works for all is always going to be best.

It has been a thought-provoking, challenging and highly successful Focus Farm. Thanks must go to the support group members who donated their time and expertise to the program for the two years and without, the Focus Farm would not be as successful nor enjoyable.

Thanks to Noel, Ann, Dean, Bec and Evan for throwing open the books and the doors for the Focus Farm program and the wider industry to pull apart. Thanks to Gippsdairy for funding the program and to all those who have followed this Focus Farm in print, at Open Days and elsewhere.

 

 

 

 


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