Dairy Apples
Independent Contributor
Comparing apples with apples…..in dairy
My mum….bless her, made the best apple crumble, combine with milk straight from the cow and you have New Zealand’s second best pudding….yes we claim pavlova too….
A common topic recently is dairy values both sides of the ditch, there are many KPI’s, starting with straight ROI, Milk Solids/ha, Milk Solids/cow, pasture consumed/ha, but today I will discuss $/KgMS, or farm purchase value per kg of milk solids currently produced.
This a calculation from a Western Victoria (WD) farmer last week comparing his own operation value with another he considered.
WD Home Farm (Irrigated)
703 acres @ $12,500 = $8,799,375
630 cows @ 2200 + followers $250,000 + $500,000 for machinery
$10,435,375 / 380,000MS = $27/KgMS
WD Farm for consideration (partial irrigation)
988 acres @ $9,000 = $8,892,000 land value
500 cows @ 2200 = 1,100,000 + followers 200,000 + 500,000 for machinery
Therefore 10,692,000 / 255,000MS = $42/KgMS….”This is too expensive for Western Victoria. Dairy’s in WD are viable at $30/KgMS as long as system is basically buy in grain <2.2 t/cow and < 0.5 T purchased ‘other feed’. At $9k an acre I’d say is still 30% overvalued.”
Gippsland
Running the numbers on a South Gippsland dairy with an Irish mate, he claims he doesn’t need a budget under $35/KgMS, big variation from $45 on tightly held MacAllister irrigation farms to $35 in South Gipps dryland.
NZ Dairy
The reality is NZ dairies have jumped from low 30’s to $35-40/KgMS on the back of $10/KgMS prices, and a Fonterra handout after selling the family jewels to Lactalis.
Of course there are many variables involved
- Self-contained or not.
- Grain use varies from 0.6t in grass-based NZ to 2.5t in dryland Australia.
- Irrigated, partial irrigation, TMR (Total Mixed Ration) systems.
- Farm Working Expenses per KgMS vary from $5.40/KgMS on a NZ barn wintering farm to $9 on a North Victoria TMR system.
Here’s an outlier or perhaps futuristic indicator, last week an irrigated NZ Canterbury dairy farm broke all previous records at $87,000/ha.
How does it compare? Well their average production is 625,000MS off the 394ha…..calculated as above this is a whopping $54/KgMS and doesn’t actually include cows or machinery.
The reality is that as with any type of farming the true KPI is arguably the actual margin over costs achieved, usually linked to the efficient growth and consumption of Vitamin G….Grass.
So at a $10 milk price with an average $6.50/KgMS FWE, your margin is $3.50, if you paid $35/KgMS that’s a tidy 10% ROI!
Or for capitalist pigs like myself, maximise LVR and wait for the cyclical jumps in land values loosely linked to inflation and commodity supply v demand curves.