Top performing dairy businesses under the microscope
Seasonal conditions across the three Victorian dairying regions were characterised by challenges throughout winter and spring 2019, followed by a mild summer and good autumn 2020 rains.
The latest Victorian Dairy Farm Monitor Report found farms in each of the regions responded differently depending on the relative positions heading into 2019-20.
While nearly all Dairy Farm Monitor Project farms experienced positive profits in 2019-20, with consistent performance reported across the regions, many farms have not fully recovered from the recent years of challenging conditions and lower performance.
Following are some points identified by the Dairy Farm Monitor Report that contributed towards the success of the top performing farms in the regions.
The top 25 per cent of participants in the north had a higher proportion of homegrown feed as percentage of metabolised energy consumed at 57 per cent compared to the regional average, but lower than the top performing farms last year (68 per cent).
The higher percentage of homegrown feed used by the top 25 per cent was reflected in the total water use for these farms (826mm/usable ha), which was eight per cent higher than the average of all participant farms in the north.
They produced 20 per cent more homegrown feed (one tonne DM/100mm/ha) compared to the average (0.8 tonne DM/100mm/ha).
They had a lower water use efficiency of 3.9 tonne DM/Ml of irrigation water compared to 4.1 tonne DM/Ml for the average.
The top 25 per cent farms spent $3.96/kg MS on variable costs in 2019-20, 14 per cent lower than the average of northern Victoria farms and slightly higher (five per cent) than last yearâ€™s top performing farms.
Generally, they spent similar amounts on herd and homegrown feed costs and less on shed costs and purchased feed than the average of all participant farms.
Compared to the northern Victorian average, they had higher feed inventory change and lower water inventory change.
The top performing farms spent less on overhead costs than the average due mainly to their lower labour cost (employed and imputed labour).
Their imputed and employed labour costs were 24 per cent and five per cent less than the average, respectively, as supported by their higher labour efficiency on a per cow and kg MS bases.
Farms in the top 25 per cent (ranked according to return on total assets) were characteristic of higher milk production measured per cow and per hectare, and higher labour efficiency, based on cows/FTE and kg MS/FTE.
The homegrown feed cost categories that contributed most to the increase were fertiliser costs. This increased by 15 per cent to $0.58/kg MS as farmers applied greater quantities of fertiliser in 2019-20 than the previous year, taking advantage of the consistent rainfall events.
They were rewarded with pasture grazed increasing by 0.4 tonne DM/ha to 4.7 tonne DM/ha and conserved fodder totals remaining stable at 2.2 tonne DM/ha on the milking area.
Farms in the top 25 per cent had lower overhead costs, compared to the average. The average overhead costs for the top 25 per cent was $2.29/kg MS in 2019-20, slightly higher than $2.25/kg for the top 25 per cent group in 2018-19.
The top performing group recorded an EBIT of $2.87/kg MS, up from $1.93/kg MS the previous year. The top 25 per cent recorded a higher milk price and demonstrated more efficient milk production with higher milk solids sold at lower costs, compared to the average.
Farms in the top performing group had greater pasture consumption compared to the average.
When compared with the top performing group last year, grazed pasture increased while conserved feed decreased.
Grazed pasture was 5.6 tonne DM/ha in 2019-20, up from 4.8 tonne DM/ha for the top performing group in 2018-19. Conserved feed was 1.7 tonne DM/ha in 2019-20, down from 3.4 tonne DM/ha in 2018-19.
The top 25 per cent of farms in Gippsland had similar physical characteristics to the region average for rainfall, water use and labour efficiency.
There were noticeable differences for herd size, stocking rate, production per cow and per hectare and estimated grazed pasture per hectare.
The top performers appeared to have utilised their physical resources to similar advantage to that of the average for the region, with the key performance differences being in homegrown feed utilisation and cost control.
The top 25 per cent participants received an average milk price of $7.11/kg MS, an improvement of 19 per cent from last year with a range of between $6.74/kg MS and $7.69/kg MS.
There was a large proportion of farms in the Gippsland sample that changed milk processors during the year.
This was either to find a payment system that better suited their milk supply pattern or looking for companies that were offering a higher payment for their milk.
In the top 25 per cent and the average of the sample, milk income accounted for 92 per cent of gross farm income.
The top 25 per cent also experienced a 12 per cent decline in grain and concentrate feeding, with a similar 11 per cent decline in variable costs to $2.95/kg MS.
The second largest variable cost was fertiliser at $0.57/kg MS, six per cent higher than in 2018-19 at $0.54/kg MS. The elevated fertiliser price per tonne this year can account for the increase in this cost category rather than an increase in quantity applied.
Overhead costs for the top 25 per cent remained similar to that of last year at $1.65/kg MS. The top 25 per cent were lower in all overhead cost categories per kg MS compared to the average.
The slightly larger herd size, better labour efficiency and mix of imputed and paid labour enabled a better ability to spread costs this year.