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How to maximise your payout
Well, what a bumpy ride we’ve had in 2010!
We’ve come from the middle of a recession with a $4.55 payout forecast and yet now we are looking at a forecast payout of $6.05 plus. Many on farm decisions were made early in the season based on the $4.55 forecast which had significant negative impacts on New Zealand’s total milk production.
The question dairy farmers need to ask themselves right now is, “How to maximise the $6.05 payout?” The key to answering this question is understanding how the figure of $6.05 is calculated. You will be aware that separate payments are made for fat and protein. At a $6.05 payout, farmers are being paid around $3.75 per kg for fat and yet protein is earning a whopping $10.50 per kg. You read that correctly, $10.50 for your milk protein. These figures highlight the importance of increasing the protein to fat ratio of the milk produced by your herd to ensure you maximise your returns.
Over the summer period, protein levels in pasture tend to drop away so in order to maintain milk production a supplementary feed high in both energy and soluble carbohydrate is recommended. The next step is understanding how to increase the protein to fat ratio in the milk being produced by your herd. Luckily it’s not too complicated! Basically speaking, for a cow to produce higher protein levels in her milk (along with a balanced diet) she needs to be consuming a high grain diet. Once digested, the grain breaks down into soluble carbohydrate which is one of the main drivers in protein production. A benefit of feeding a top quality, grain based pelletised feed, is that during the manufacturing process parts of the grain are broken down (gelatisation) making the product even more digestible. Other benefits of a fully pelletised feed include the ability to include customised rates of minerals, trace elements and/or metabolic products at a rate to suit your herd, e.g. inclusion of rumensin for improved digestibility or zinc as a preventative measure for facial eczema. Lastly, the heat treatment that the pellets go through greatly reduces the risk of pathogen challenge from the likes of salmonella.
Unfortunately, due to the recession and the original $4.55 payout forecast a lot of farmers have resorted to low cost (nil grain) blends or products such as palm kernel (PKE) and whole barley (50% of both will be passing straight through the cow so multiply the cost by 2). While these products are low cost and do have a place in the market at certain times, they will simply not offer you the same return on investment as a quality grain based pelletised supplement. In fact, in many cases, the likes of PKE will increase fat levels in milk (decreasing the protein to fat ratio) to a point that it drives payout down even further! That’s right, you will in fact not even get the $6.05. On the other hand, customers who use a high quality, grain based pelletised feed generally increase their protein output (increasing the protein to fat ratio) so potentially earn more than the forecast payout figure. If you want to make the most of the $6.05 payout or even earn more than $6.05, try a high protein, grain based concentrated supplementary feed. Better still, talk to our team about demonstrating our Smart Feed Milk Cheque Analyser.
In summary, the answer to the original question on how to maximise the $6.05 payout, is simple. Firstly adequate protein levels are normally not an issue with NZ pasture based systems. Getting dry matter into them is normally a bigger challenge. Secondly, feed a grain based supplementary feed for improved feed conversion efficiency and increased protein production. These two factors should enable you to maintain milk production for longer while at the same time increasing the protein to fat ratios in the milk produced which will means Seales customers simply make more money.
Why wouldn’t you!
What a great month it’s been for the NZ dairy industry. I still question Fonterra’s tinkering with it’s capital raising challenges.
Remember our business is inextricably linked to the fortunes of NZ’s dairy farmers, so if in our view Fonterra is not serving its shareholders in their best long term interests we will not only say so but also go into bat for better business outcomes from Fonterra. On the flip side we will be the first to compliment and cheer from the roof tops when we see fantastic business success from Fonterra and its management team.
Their recent 55c lift in forecast for the coming season could not have come at a better time for NZ farmers. So well done to Fonterra’s Board. Cashflow’s have been “hammered” and banks have overdrafts or working capital. This “shot in the arm” is the best new farmers have had following nearly a year of severe negative sentiment, poor outlooks and catastrophic cashflows.
We still have huge challenges ahead of us, but one thing that does concern me is Dairy NZ’s sole focus on the reduction of costs on farm. Improvements in milk production, productivity enhancements, strategic supplementation of dairy cows, an honest assessment of the returns from different feeds is an absolute must if NZ farmers are to be successful in the long term. Increased milk flows with the right soluble carbohydrate based feeds can lead to elevated protein levels leading to increased payouts, improved cashflows and better or greater returns on funds invested on farm.
Like Fonterra, carrying on doing the same as we’ve always done will not cut it in the future profitability game.
Fonterra’s performance is key, not only to NZ Dairy farmers, but also critical to the success of every agri-business in NZ servicing the dairy industry.
Clearly Fonterra have over-stretched themselves internationally, and as I see it, have only two choices. Obviously they need to raise capital, and, if they are to retain the co-operative model, they will either need to raise capital off farmers, (extremely unlikely under the current payout), or they will need to sell assets. If selling assets is the pathway chosen, then selling offshore assets would be the obvious place to start. However, if they want to continue with their overall global strategy of year round milk supply from different regions supplying the vast array of markets at their disposal, then capital raising will be required.
Personally I cannot see the ‘two headed conflicting monster’ on a partial capital float of part of the business while retaining shareholding control, as being workable in the long term. As such I think the choices are either they have to completely float the business and somehow retain preference shares that farmer shareholders control. This again is fraught with difficulty, however one thing is certain, an output co-operative such as Fonterra and Silverfern Farms, will never be as successful as an input co-operative. An input co-operative can ‘squeeze’ its suppliers to the lowest price possible. Fonterra’s dilemma is they are unable to ‘extort’ farmer shareholders in the same way that their competitors such as Nestle, Palmalat, and San Maguel are able to.