A lot of discussion groups throughout Ireland have been comparing the past year's accounts. The idea is that farmers get to compare their own financial performance against all the other group members. By highlighting the physical and financial aspects where performance can be improved, the individual can then go home and set new financial targets for the coming season.
This year the process is especially important. While average milk price for the year is likely to be higher than 2010, profitability is under threat from substantial price hikes in input costs such as concentrate feed and fertiliser. The farming system implemented needs to be robust enough to capitalise on these highs of milk price in order to ride out the lows.
This is a vital point, given the fact that for some farmers it may have taken the full financial year of 2010 to overcome the problems associated with feed shortage, large overdrafts, expensive credit from suppliers, increased debt levels, and poor cash-flow positions created by the poor weather and low milk price of 2009.
Projected financial performance is now further complicated by considerations of milk quota on both a national and individual basis until 2015. This makes financial budgets for 2011 and subsequent years based on a five-year physical plan an essential part of any dairy farmer's armour.
In Ireland, financial performance is generally compared using euro per hectare and cents per litre. However, as milk is subject to a commodity market and milk price is affected by the levels of milk solids, I decided to also include €/kgMS (euro per kilogram of milk solids sold) in this year's financial comparison.
This has provided both physical and financial data that I thought would be interesting to compare against the average data set of top five Canterbury dairy farms for the 2009/10 milk production year. These figures were compiled by LUDF for benchmarking purposes and reported in August 2010 New Zealand Dairy Exporter. I have compared an average data set for discussion groups and the average for five of the top farmers in Ireland in terms of profitability.
All five farms in NZ operated a production system which has 10-20pc feed imported, usually to extend lactations into the autumn and for dry cows. The average imported supplement of concentrate and purchased silage for the five NZ farms was 1.54tDM/Ha, equivalent to 416kgDM/cow.
The data makes fascinating reading, especially when you consider that the figures of NZ $/kgMS to Ireland's €/kgMS are quite comparable without any adjustment of exchange rate. The figures also clearly highlight the large impact that lower operating expenses/kgMS have on profitability. Often a target is to keep the ratio of expenses to income below 55pc, which is clearly the case for each of the top five Irish and New Zealand farmers. The level of overall production of milk solids both per cow and per hectare is also substantially greater, at over 1,000kgMS/milking ha. You will notice that the cows on these top farms are also producing more efficiently at 77pc and 95pc kgMS/kg LWT in Ireland and NZ respectively, compared to the average figure of 68pc.
Another number that stands out is that of pasture and crop eaten in tonnes of dry-matter produced per hectare (tDM/Ha). There is a large difference of 3.1tDM/Ha between the top five Irish and the average Irish figures. Many studies have shown the volumes of pasture eaten to be a strong driver of profit and it resonates here.
Finally, scale is clearly having a large impact on both overall profitability and labour efficiency, when considered both in physical terms as the number of cows milked per full-time equivalent or the cost of a wage to management, when the labour adjustment is included.
So study these figures and draw your own conclusions. However, knowing your own financial position should be a non-negotiable. Even in good times, if you don't know your position relative to your budget then you can't make informed decisions about where to spend money for the best return. This is an important step in the strategic planning process if you want to grow your business.