1. 2015 NSW Dairy Farm Monitor Project Camden, 2 nd Mar 2016 Kerry Kempton – Technical Specialist Dairy Peter Havrlant – Development Officer Dairy NSW DPI Dairy Business Outlook Discussion Groups – 2016

2. DISCLAIMER / WARNING  This report should be used as indication of the dairy farms in NSW for 2015 F/Y  It is not an industry benchmarking tool  Averages/statistics/trends are not statistically significant  BEWARE AVERAGES!!!!  Data should not be used by financial institutions for lending assessment purposes  Milk pricing information should not be used for contracting purposes

3. NSW Dairy Farm Monitor Project  4th year running in NSW  37 farms analysed across NSW  Now part of the national DFM Project & database  Based on Victorian program, funded by Dairy Australia

4. Why do it?  As a service to the NSW dairy industry  To provide accurate reliable information about NSW dairy farm performance  To monitor changes and trends over time  To provide the participating farmers with an indepth analysis of their business  To understand the issues and factors affecting farms and families

5. Participant locations Dairy Farm Monitor Project

6. divided by assets managed Return on asset managed (%) divided by equity Return on equity (%) DFMP method Dairy Farm Monitor Project

7. 7 Cash vs Profit Source methodology: Dairy Farm Monitor Project

8. 8 Cash vs Profit continued

9. 2014/15 season  Milk price $7.46/kg MS, (54 c/l) up 3% from 2013/14  Concentrate price $370/t as fed ($413/t DM)  Above average rainfall Dairy Farm Monitor Project

10. Results for 2014/15 for NSW  See Infographics  Results in more detail………..

11. Physical Results – State & regions avge Dairy Farm Monitor Project Physical resultsStateNorthSouth Average Milk price received ($/kg MS)$7.467.627.28 Herd size (No. cows in milk for at least 3 months)338259430 Water used – rain plus irrigation (mm)113014301076 Total usable area (hectares)287215372 Milking area (hectares)12895165 Milk sold (kg MS/cow)506477540 Pasture grazed (t DM/ milking ha)6.56.46.7 Pasture conserved (t DM/ milking ha)1.8 Concentrate Price ($/t as fed)$370390350 Purchased feed /cow (t DM/cow)2.62.42.8

12. Financial Results - State (average) 2014/152013/14 Assets$6.4M$6.3M Debt$1.5M Equity76% EBIT$264k$170k Net Farm Income$160k$56k RoA3.5%2.6% RoE2.8%1.3%

13. Financial Results - regions (average) NorthSouth Assets$4.8M$8.4M Debt$0.9M$1.9M Equity78%73% EBIT$120k$435k Net Farm Income$26k$319k RoA1.9%5.3% RoE0.4%5.7%

14. Return on assets managed % - regions Dairy Farm Monitor Project

15. Return on assets managed %

16. Earnings before interest and tax per Kg MS Dairy Farm Monitor Project

18. Profit results  There is a wide variation between farms in both groups.  The top 25% farms (based on Return on Assets) are shown in the striped bars.

19. Earnings before interest and tax - North Dairy Farm Monitor Project

20. Earnings before interest and tax - South Dairy Farm Monitor Project

21. Regional variation  There is also a clear difference in profitability between the North and South regions.  These differences continue when broken further within regions: –North broken into Northern coastal (from Taree north to Queensland border) and Hunter region –South broken into coastal and highlands and inland valleys

24. What’s driving the differences? Milk price Cost of production Profit

25. Why?  NOT because of: –Milk price –Farm size –Production per cow –Farm system –% imported feed

26. Why  Differences lie in Cost of Production  Both in Variable costs (main working expenses of Herd, Shed and Feed costs –Range $3.70 to $4.70 / kg MS  And Overhead costs (labour, R&M, depreciation) –Range $2.50 to $3.50 /kg MS  That’s $2.00 /kg MS (15 c/l) difference between group 1 and 4 in COP!

27. Conclusions….  It does cost more to produce a kilo of milk solids in the North than the South of the state. –Grain price differential of $30 - $40 per tonne –Lower quality pasture in summer –Smaller farms with lower labour efficiency  Opportunity – for all farmers to examine their cost of production and review their management system  No one size fits all solution to higher profitability

28. The secret to success

29. Some of the top farms in DFMP  3 farms each from North &South with high EBIT Farm 1 North 10 Farm 2 North 11 Farm 3 North 17 Farm 4 South 21 Farm 5 South 22 Farm 6 South 05 Herd size2503508801260800250 Usable area3611806071030443218 Milking area101140226434250100 MS/cow406517624487397555 Litres/cow MS/kg lwt0.741.30.670.970.740.87 Pasture cons MA 13.510.75.99.89.210.2 Cows / FTE996810513116379 MS / FTE403443540745082636656466743717 Milk price7.897.467.525.907.807.70 Feed costs3.072.583.47 2.623.06 COP6.225.676.294.714.326.18 EBIT3.002.581.972.193.742.56

30. Features of top 25% farms (by EBIT)  COP $6.00 – 6.50 /KG MS (42-45 c/l)  60 – 65% feed consumed is home grown  > 70 cows / FTE, 40,000 kgs MS /FTE  Herd size above 250 cows  Drive per cow efficiency MS/kg LWT  Keep feed costs down by home grown feed and simple diets  Are good in most areas of management

31. Summary  2014/15 was a profitable year for the NSW dairy industry Average EBIT: $265k, up from $170k Average NFI: $160K, up from $56k  Above average rainfall  Higher milk prices  High cattle prices  Build up of feed inventory Dairy Farm Monitor Project

32. A brief outlook for 2015/16  Milk price: slightly lower than last year  Grain prices same or lower – good grain harvest in NSW  Seasonal conditions –a cracker so far for most coastal regions –Drier inland, though variable –Some flooding in January in Hunter and south coast  Cattle prices strong  Milk production in NSW up on last year. Dairy Farm Monitor Project

33. Farmer sentiment

34. For more information: www.dairyaustralia.com.au/dairyfarmmonitor www.dpi.nsw.gov.au/agriculture/livestock/dairy-cattle Kerry Kempton, NSW DPI, Tocal 02 4939 8945 kerry.kempton@dpi.nsw.gov.au