We all know that the current season is very stressful for New Zealand dairy farmers. What is not so evident is whether farmers are making the right decisions. I am seeing increasing evidence of some poor decision making down on the farm.
In early October, I was driving home to Christchurch from the Mackenzie Country. On the way I passed many dairy farms. I was surprised, particularly in South Canterbury, to see lots of predominantly light green pastures, with dark green urine blobs therein. I was looking at pastures that have not had any nitrogen since last season.
Back in the old days. when clover flourished and pastures were clover-rich, the lack of fertiliser nitrogen may not have mattered. But this spring it does matter.
These sights confirmed my concerns that many dairy farmers are desperately trying to cut costs but are getting it wrong. In discussions with industry people whom I trust, I am hearing stories of financial advisers who are focusing on short term cash flow without an adequate understanding of cow and pasture biology. I am hearing that there were lots of metabolic problems at calving. I am seeing people who seem to be changing their overall system to deal with short term situations. And I am seeing the consequences of failure to recognise that there is both a numerator and a denominator to the cost of production.
So on Thursday 8 October I attended the Lincoln University Dairy Farm (LUDF) Focus Day to see what they were doing and how they were faring. I came away from the day mightily impressed.
Given my own long time association with Lincoln University, I need to make it clear that I have no role in the running of this farm. However, way back in 2000, on coming back to New Zealand after almost twenty years working overseas, I was part of a committee, chaired by Farms Director Tony Whatman, that was given a brief to consider the alternative irrigation designs. I think we got that correct with a decision to invest in centre pivots.
Looking back now, the centre pivot decision seems obvious. But at the time there were only a very few pivots on dairy farms.
I also had many discussions in those early days with the late Bill Kain about his governance proposals, which essentially involved getting the decision making out of the university system, and getting industry groups involved. I was not confident that Bill’s governance strategy would work, but in large part it has.
Since those times, I have spoken at a few focus days on various topics, but I have had no direct involvement in the farm. So I came to the focus day as an independent.
To put it in a nutshell, the LUDF management team is doing a great job this year.
The winter was cold and wet, and the spring came about three weeks late. But the cows have peaked at 2.5 kg milksolids per day and are on track to do 500 kg for the season. Of course there is still a long way to go. But the cows are in excellent condition with average body score of about 4.8 and they have been holding well. For an all-grass farm, apart from some bought in silage and off-farm wintering, this is mighty impressive. Everything is humming along and farm working expenses should come in at about $3.80 per kg milksolids.
With a milk price now expected to be about $4.60, plus a dividend of say 25c, and livestock income of about 50c, then overall cash income should be about $5.35 per kg milksolids. That leaves a cash surplus of about $1.55 per kg milksolids for finance costs.
Compared to the boom years, these figures are far from great, but in the current world where cash is king, LUDF is trucking along nicely. LUDF still needs working capital, but the operating cash flow should be positive by February.
It is notable that whereas Fonterra is reporting nation-wide production down eight percent from last year, the production at LUDF is actually above last year. My dairy farming mates, who have also figured out a long time ago that hungry cows always kick the owner in the back pocket regardless of payout, are in similar situations. They are saving costs wherever possible, but not at the expense of production. Like LUDF, by spreading the fixed costs across good production figures, they are keeping farm working expenses to well under $4.
There was discussion amongst experienced farmers and rural professionals at the focus day as to how LUDF is achieving its current performance. The simple answer is that LUDF has both a clear long-term strategy and also a coherent set of tactics. And they are not muddling up those two.
A key element of the LUDF production strategy is that cows have to be well fed within a pasture-based system. One way they are doing this is by a focus on maximising the metabolisable energy (ME) value of pasture by use of tetraploid grasses linked to a regular pasture renewal program. These last few weeks, the pasture has been between 11.8 and 12.3 MJME/kgDM.
At the end of last season, LUDF dried off the cows with pasture covers of 2200 kg dry matter per hectare. The plan was to try and winter about 20 percent of the herd on the milking platform, but it soon became obvious that pasture covers were slipping. So they shipped those remaining cows off to a grazier, despite the additional cost.
Then, with the cows due back on farm in late July, it was obvious that grass covers were still inadequate as a consequence of the cold winter. So additional grazing was purchased for those cows that had not calved. Yes, that cost additional money, but getting the biology right came first.
Up until 2011, the dominant mantra from the LUDF was high stocking rate and high pasture utilisation. With hindsight, the stocking rate got too high at about 4.3 cows per hectare. Overall production was essentially static at about 1700 kg milksolids per hectare, despite high nitrogen applications. Then in 2010/11, per cow production dropped from a long term average of about 420 kg milksolids down to 395 kg and production per hectare dropped that year to 1653 kg. Clearly a rethink was necessary.
The need for change was reinforced by increasing recognition of the nitrogen leaching that occurs from cow urine. So the new focus was less nitrogen fertiliser, less cows, and hopefully more milk per cow.
Less nitrogen and less cows is easy to both say and do, as long as you are not too worried about the back pocket. But getting more milk per cow needs not only a new set of decisions but also some good decisions.
Production per cow has indeed increased, reaching 498 kg per cow in 2014/5. With stocking rate down to 3.5 cows that year, production per hectare reached 1742 kg. This current year, stocking rate has again been planned at 3.5 cows per ha and the target is 1750kg/ha milksolids.
If profit were the only consideration, then it is possible that the stocking rate has gone below the optimum. But nitrogen leaching is also a key concern. Based on the latest version of Overseer (V6.2), nitrogen leaching has come down from about 50kg per ha to 35 kg. If Eco-N were still available, the improvement would have been greater.
The current LUDF output is the consequence of a whole raft of decisions that have come together into a whole system. I have already mentioned the tetraploid grasses and a structured pasture renewal program, which is linked to a management regime that allows these grasses to maximise both yield and quality. A carefully structured animal health and reproductive program has also been important. And as one of the management team emphasised, there is a huge amount of monitoring that goes on, with tactical feed management decisions being made daily.
In some areas, Lincoln has cut down on inputs this year. This includes less superphosphate.
Long term, phosphorus inputs must be kept up, but short term savings can often be made, and that is the case at Lincoln where the Olsen P levels are strong. Similarly, the pasture renewal program has been reduced for this year. That too is OK, as long as it is just short term.
There is more than one way to manage a dairy farm. So the specific production targets and decisions that have been implemented at LUDF are not necessarily the best path forward for everyone. But the key messages from LUDF and other top farmers are not to panic when times are tough, and not to throw out the baby with the bath water.
Tough times are when you need a clear strategy already in place and a long-term focus. Then it is a case of close monitoring and adaptive decision making at the margin to ensure that the cows are never going to be hungry. Once cow condition gets down, then everything else starts going wrong. And the impacts of that are long term.
I am sure that the LUDF system will evolve further. This season the 15-month heifers will be naturally mated because the grazier does not have adequate yard facilities for artificial insemination. That situation will clearly need to be revisited, because the 15-month heifers are the cohort with the greatest genetic merit.
Also, there will need to be further discussion as to whether an N loss of 35kg per ha, which excludes the losses over winter on support land, is acceptable long term. In that context, the LUDF soils are much less leaky than much of Canterbury, and if the LUDF system was implemented elsewhere, then the losses would be much higher. But that is a topic for another day.