Farm advice: Time to analyse your business financials

By: Felix Rodriguez-Firpo, DairyNZ farm system analyst


The summer period is a good time to consider your farm’s financial returns for this season and whether there are any changes you can make as you look ahead

The milk price this year from Fonterra of $7.25 per kg MS (October) is in the bottom third of inflation-adjusted prices over the last 15 years (Table 1) and many farm businesses will make no financial progress this season unless the milk price increases.

With that in mind, DairyNZ has analysed 15 years of DairyBase data at a national and regional level, looking at the key performance indicators (KPIs) and relationships between the top 25% and bottom 75% of farms ranked by Return on Assets.

Our analysis looked at what are some of the key metrics to assess how a business is performing and if there is potential to increase profit.

Summary of key findings

Lower cost of production is key

The top 25% of farm businesses produce milk for $1 less per kg MS compared to others, with the top quarter’s operating expenses sitting at $5.25 per kg MS compared to $6.25 per kg MS for the remaining farms (Table 2).

This shows a significant difference in the way that some farms manage their businesses, including controlling their expenses in relation to milk output.

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Operating profit

The operating profit showed a $1600 difference per hectare between the top 25% and the other 75%, which could equate to an extra $240,000 for the top group, assuming a typical 150-hectare farm.

We also saw the operating profit margin is 13% higher for the top group meaning these farms can maintain profitability when milk price drops or climate impacts production and costs.

Imported feed and pasture

More feed doesn’t necessarily increase profit. Our analysis showed that the quantity of imported feed was similar between the two farming groups.

However, there are high-input farms that do make high profits, but generally, they source their supplement relatively cheaply and have very low wastage and pasture substitution. Pasture and crop harvested are clear drivers of profit and account for approximately 22% of the difference in operating profit per hectare.

Considering the importance of pasture, we looked at extra operating profit per hectare for each extra tonne of pasture eaten. We found the previous guideline of $300 of extra profit per tonne of pasture eaten has increased to $350 extra when incorporating recent seasons. This applies to both the top 25% group and the remaining 75% group.

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Use summer to review your business

We encourage you to look to use this summer period to review your farm system and expense structure. Consider comparing what you’ve achieved compared to similar farms in your region, using DairyBase. Since pasture and crop harvested have been shown to have significant impacts on profit, these are good focus areas.

Budgeting advice and templates are available at dairynz.co.nz/budgeting while you can find our DairyBase data at dairynz.co.nz/dairybase.

Table 1: Mean inflation-adjusted milk price 2007/8 – 2021/22, ordered from high to low

Season  Inflation-adjusted  milk price 
2007/08  9.86 
2021/22  9.24 
2013/14  9.10 
2010/11  9.00 
2011/12  8.21
2009/10 8.00 
 2020/21 7.93
2019/20 7.81
2012/13 7.66
2017/18 7.60 
2018/19 7.22
2014/15 6.91
2008/09 6.80 
2016/17 6.75 
2015 /16  4.57 

Table 2: 15 years of pooled national data

  Top 25% Remaining 75%

Dairy Gross Farm Revenue ($/kg MS)

8.48

8.40
Farm Working Expenses ($/kg MS) 4.40 5.03
Operating Expenses ($/kg MS) 5.25 6.23
Operating Profit ($/kg MS) 3.21 2.09
Operating Profit ($/ha) 3750 2152
Operating Profit Margin (%) 38 25
Operating Return on Assets (%) 7.3 3.6
Asset Value ($/ha) 45,342 53,561
Milksolids (kg MS/Cow) 400 375
Milksolids (kg MS/ha) 1151 1058
Grazing (kg DM/ha) 986 959
Imported Feed (kg DM/ha) 1758 1701
Nitrogen Applied (kg N/ha) 148 130
Pasture and Crop Harvested (t/ha) 12.8 11.8
Stocking Rate 3.0 2.8

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