Dairy farmers can now forward budget for the coming season with ease thanks to an enhancement to DairyBase, Dairy Australia's online financial management tool.
DairyBase Budgeting allows farmers to select a historical dataset in DairyBase and adjust some key financial parameters to enable forward planning.
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Users can quickly combine existing data with estimated milk price and input costs to build a more accurate picture of where opportunities for profit might be found.
Dairy Australia's Farm Business Data Lead, Helen Quinn, said DairyBase Budgeting was a quick and easy way to use DairyBase to improve business outcomes on-farm.
Farmers can select the most recent financial year or any historical data that best represents the predicted season ahead such as expected land use and milker numbers, as well as seasonal conditions.
By matching the data with milk income estimates and changes to livestock revenue, fertiliser needs, irrigation costs and purchased feed predictions farmers can better set up their season to maximise profitability
DairyBase Budgeting calculates the new Farm Operating Cash Surplus for the business as a result of changes made in the budget.
Ms Quinn said DairyBase users already understand what drives profit, where opportunities lie and how to manage risk in their business and DairyBase Budgeting would further utilise this knowledge by being able to apply it to future scenarios.
For more information about DairyBase Budgeting, including a factsheet and instructional video go to dairyaustralia.au/dairybase.
What is causing slow milk recovery?
In 2019/20, dairy farmers' financial performance has shown improvements on the year prior based on performance data collected by the Dairy Farm Monitor Project (DFMP).
Increased costs of production caused by a reduced availability of feed and impacted milk flows were due to the severe drought in most parts of Australia during the first half of the season.
However, a strong autumn break brought some much-needed relief and helped improve operating conditions in many regions.
Favourable seasonal conditions helped to begin a recovery in Australia's national milk pool and were reflected in the DFMP results, with farm profit in every region improving on the previous season.
Even though the weather has been generally favourable so far this season, dairy farmers may wonder why regional milk production has seemingly stagnated.
This is due to several factors that follow a period of widespread low farm profitability, such a decrease in farm numbers, smaller regional herd sizes and costs becoming embedded in farming systems.
A key factor for individual farmers is higher embedded costs.
This is under more direct control than the other factors and may come after a period of drought or consecutive years of cost cutting due to unfavourable market conditions.
Cost cutting or cost management?
Farmers are generally effective at cutting costs if necessary, to deal with the nature of the markets they operate in and climate conditions.
This can happen during challenging years through reducing repairs and maintenance, lowering reinvestment in the business while cash flow is restricted, reducing stocking rate and increasing imputed labour.
However, farmers should remember that none of these options are necessarily long-term solutions.
Cutting costs in these areas over numerous years often result in a rise in businesses cost of production in subsequent years.
While necessary in a time of poor cashflow, this will result in a 'lag' period before farmers realise the full benefit of better operating conditions.
This lag period can be reflected in national and regional milk production, as it can cause a delayed response on farm to either an increase in milk price or improvement in climatic operating conditions.
Because of this, farmers may want to think in terms of 'cost management' rather than 'cost cutting' during challenging years to manage long-term farm efficiency.
The idea behind this is that improvements made in profitable years will maximise a farmer's margin to a point they can reduce the need to 'cut costs' in poor years, and allow them to exploit favourable market and/or climate conditions much earlier.
Many high performing farmers in the DFMP point to reinvestment coupled with a constant focus on improvements across all areas of their business as a crucial way to reduce costs over time while improving profit margins.
Find out more about how the Dairy Farm Monitor Project results reflect long-term farmer strategies in the 2020 Situation & Outlook report, available at dairyaustralia.com.au/sando.
Decision making much more than just guesswork
Lisa and Eddie Dwyer are acutely aware of what it takes to succeed in dairy farming.
While Eddie had been around dairy his entire life, working on the family farm, it wasn't until he and his wife Lisa branched out to buy their own farm in 2004 that they realised their business future.
While Eddie had a strong farming background, Lisa brought a financial eye to the business. This enabled them to complement each other's skillset while running their 344ha farm in Hawkesdale before moving to Purnim, southwest Victoria in 2018.
"Eddie understood the practical day to day operational matters but had a good business brain that hadn't yet had the opportunity to contribute on the family farm.
"When I came on the scene, I had a commercial instinct due to my background in management in the thoroughbred racing industry," Lisa said.
The business was not without its setbacks in those early years, however.
"We expanded by buying a neighbouring paddock, just days before the global financial crisis and the milk price crashed.
"What that taught us though was that when the proverbial hits the fan, if you have those fundamental business practices firmly in place and remain committed to those, you can work your way through it," Lisa said.
Planning for the future has helped them set goals and have targets to grow towards.
"We have a business plan that we take out every couple of months and tick the things off that we've achieved and add some new things that need to be done.
"We've found that writing this stuff down is really effective. It helps cement the goals you have in your mind and you then subconsciously work towards achieving them" Lisa explained.
Good planning and making informed decisions at every level of their business helped guide Lisa and Eddie to increasing their profits, achieving an average in excess of $2.00 earnings before interest and tax per kg of milk solids across the past five years.
Being able to compare specific aspects of their performance to other farms in their region has had a hand in that success.
Regional data is the key to benchmarking your business
Lisa and Eddie are part of the Dairy Farm Monitor Project, providing their performance data as part of a wider report to all farmers across the region.
This data can be accessed through DairyBase, an online web-based tool that enables dairy farmers to measure and compare their own farm business performance.
"The Dairy Farm Monitor Project was not something we went out and sought, but we're really pleased we became a part of it."
"The advantages we've been able to obtain have far outweighed the stress and time commitments, and it provides us with the reassurance that what we're doing continues to be the right thing" explained Lisa.
Being able to benchmark their business against the wider region has helped them make business decisions and reaffirm the path they were on.
"If we weren't able to make comparisons through DairyBase, we wouldn't have a good grasp on how our business is performing relative to the industry. You might think you're going great guns, but it helps when you have the ability to examine how your peers are performing. You might be doing badly, or alternatively, you could be doing better than you thought," Lisa said.
The data provided by DairyBase can help find areas they can improve in, according to Eddie.
"The trigger points are always little ones that you notice. One that we've come up with this year is that our nitrogen use has been proven to be well directed. Our pasture consumption has also been going well."
"But over the years it's caught little outliers, for instance, our vet costs were shown to be higher than our peers in our district, so we met with our vet to discuss it. It turned out to be vaccination costs, which in the end we agreed was an acceptable cost."
"It's always outliers like that, like power for example, that jump out at you and you can take a closer look into why this might be happening," Eddie said.
Using DairyBase data to inform decision-making
Lisa found that the information on DairyBase is invaluable because she trusted the figures.
"The Dairy Farm Monitor Project is independently undertaken and goes through such rigorous analysis, there is a high level of trust in the figures. From an industry perspective, that's invaluable" she said.
While the amount of information available to dairy farmers through DairyBase may seem overwhelming at first, Eddie says that it's an important tool when it comes to budgeting.
Eddie advised that "if you're young and in the dairy industry you cannot afford not to use this information. The program allows you to monitor your costs. Some of the stuff in your business income-wise you can't do much about, but you can always do something about your costs."
"I always say, farming is about getting everything somewhere near right. 'Someone's good at this' or 'another is good at that,' but the really good farmers get a little bit of everything right. DairyBase enables you to grab outliers before they get ahead of you" Eddie said.
Lisa explained that when analysing the DairyBase data, it's important to compare consistent results rather than large outliers.
"You'll see some absolute superstars in some elements, but they fall down in other areas. The key to sustainability in this industry is to not be a superstar in one area, it's about being consistently good across all aspects."
"The data that DairyBase provides really helps to highlight the consistent performers. They might not be right at the top of the tree in genetics or pasture management for example, but because they're consistent across all areas they tend to feature in the top quartile" Lisa said.
Using DairyBase to analyse how you measure up against the other farmers in the region is a key tool to plan for the growth of your dairy business, Lisa says.
"There's always someone doing something better, so there's always that potential to learn from them and improve," Lisa said, "and the biggest room in the house is the room for improvement."
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