The 2018-19 year was a challenging one for Victorian dairy farmers, as the recent Dairy Farm Monitor Project has confirmed.
Farm profit was affected by continued dry seasonal conditions and high input costs, particularly in irrigation water, grain and fodder.
These costs were only partially offset by a six per cent increase in milk price.
On average, Earnings Before Interest and Tax (EBIT) reduced to $85,000.
Some farms in the survey did better than others, and below we summarise some of the findings from the Agriculture Victoria report about the better performing farms.
The top performing farms in Gippsland received more rain than the average.
As growing conditions were favourable for most of these businesses, water use efficiency, milk sold and labour efficiency were higher than the average.
It is interesting to note that the top 25 per cent (based on RoTA) are generally placed within the interquartile range for these production indicators, meaning they are generally closer to the mean (middle) than the top.
This suggests that management decisions around efficient resource use played a key role in their success this year.
Overhead costs for the top 25 per cent declined slightly to $1.63/kg MS compared with $1.75/kg MS last year.
The top 25 per cent employed less labour at $0.38/kg MS and lower imputed labour than the average. This increased labour efficiency per kg MS produced and helped to offset increased input prices.
The top 25 per cent also recorded a decrease in EBIT from $1.67/kg MS to $1.36/kg MS.
Improved milk price was not enough to offset the increased cost of production and challenging seasonal conditions.
A total of 17 farms returned a positive earnings before income tax, representing a 47 per cent decline in earnings across the Gippsland region.
Farms in the top 25 per cent group (ranked according to RoTA) had higher milk production measured per cow and per hectare, and higher labour efficiency, based on cows/FTE and kg MS/FTE.
The top performing group produced more milk per cow and per ha than the average, however, it was less than the top performing group last year on a per cow basis.
Farms that were in the top 25 per cent in the south-west region, ranked according to RoTA, received an average milk price of $6.44/kg MS, compared with $6.04/kg MS last year.
The average and top performing group recorded a milk price six per cent and seven per cent higher than the previous year, respectively.
Feed costs were the major variable cost on south-west farms, accounting for 51 per cent of total costs this year. Last year, feed costs accounted for 49 per cent of total costs.
Feed costs increased 10 per cent to $3.20/kg MS from $2.90/kg MS the previous year. The increase emanated from a rise in both homegrown and purchased feed costs.
Homegrown feed categories that contributed to the increased costs were fertiliser and hay and silage making.
Farmers in the south-west capitalised on the improved seasonal conditions by growing and harvesting higher pasture yields.
The top 25 per cent of participants in the north had a higher proportion of homegrown feed as percentage of metabolisable energy consumed at 68 per cent compared to the regional average at 60 per cent.
They were able to grow more pasture and capitalise on better rainfall than the average of all Dairy Farm Monitor farms in the north.
The higher percentage of homegrown feed used by the top 25 per cent was reflected in the total water use for these farms (975mm/usable ha), which was 10 per cent higher than the regional average (885mm/usable ha).
The top performing farms were more efficient than the average in their labour use per milking cow and milk solids sold per full-time equivalent.
Their milk production per cow and price received for milk was only two per cent and three per cent higher than the average, respectively.
However, their variable costs were 25 per cent lower and their overhead costs were 10 per cent lower than the average.
The top performing farms had lower average production per hectare and a lower stocking rate relative to all participants in the region.
The top 25 per cent of farms also experienced higher variable costs in 2018-19 ($3.77/kg MS) but they were lower than the average.
They incurred variable costs 24 per cent lower than the average but 12 per cent higher than the previous year’s top performers.
They spent 26 per cent less on feed, 17 per cent less on shed costs and four per cent more in herd costs compared to the average in 2017-18.
They were also able to conserve feed similar to the previous year.
Like the average of all participant farms, the top performers decreased their water inventory but at a lower rate of $0.04/kg MS compared to $0.17/kg MS for the average.