The Farmax Annual Report
How useful is benchmarking really? Every agribusiness professional seems to be intimate with an astounding bunch called the top 20%. But to suggest the average can move into this exclusive club under their tutelage seems to lack credibility. It is tempting to conclude benchmarking has no real value at all. To do so however is to isolate you from insights into the industry - and there is never a good argument for this. Benchmarking is credible where
· The dataset is large enough (more than 35);
· Farm systems are similar;
· The information has been validated by someone who visits the property;
· And the properties are largely the same ones each year.
If you have always considered benchmarking against yourself as the only valid comparison then you must contend with different seasonal and market conditions; a drought this year a flood the year before, $45 lambs this year $80 lambs the year before. A better approach is how you compare against a good standard groups average and the top 20% within the same year.
Farmax benchmarking is a unique journey that starts with Farmax models which are used to track performance and calculate productivity as the season progresses – all the farms will have been visited by a consultant at least once but more likely 2 to 3 times within the year. They are then cross checked by Farmax and inaccurate data excluded from any comparison.
In this article we highlight North Island hill country. There are both expected and some surprising results, particularly in comparing average with the top. In our database the top farms have been ranked on their farm gross margin per kg of potential pasture production. Therefore the performances are based on what the top earning farms are doing, rather than the top weaning % of survival rate. This is important, for example the farm with the top fawning % may not necessarily be earning the most revenue – in fact our top 20% happen to have no deer at all.
Interestingly the 2006/07 data shows top farms in the North Island do not have a greater potential to produce pasture, that is they don’t farm better land - but they do make $232/ha more. On an average farm of 500ha this equates $116,000.
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Group Average
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Top 20%
|
|
Potential Pasture Production (tDM/ha)
|
7.07
|
6.85
|
Nitrogen Boost[1] (tDM/ha)
|
0.29
|
0.45
|
Pasture loss percent of total production[2]
|
19.8
|
18.1
|
Net Pasture Production[3] (tDM/ha)
|
5.94
|
6.02
|
|
Per kg of Potential Pasture Production (c/kg)
|
4.8
|
8.9
|
|
Per kg of Dry Matter Eaten (c/kg DM Eaten)
|
5.6
|
9.8
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Gross Margin Per hectare ($/ha)[4]
|
378
|
610
|
The top 20% have a slightly higher stocking rate (and greater liveweight carried through winter) and produce slightly more product per hectare. They also loose slightly less pasture to decay (this difference is probably greater in years without drought). They have either:
· More efficient breeding policies that produce more from less pasture eaten, or
· They make more revenue per kg of product sold from finishing enterprises
And this makes up much of the $116,000 difference!
Looking at the individual farms involved in the top 20% very few have breeding cows. Their stock policies are quite complex and most enterprises are earning good revenue per kg of dry matter eaten. They have either high performing bull finishing systems, winter finished steers that receive a premium, dairy grazers, carry over cows, stud stock or have been doing some interesting trading manoeuvres (that worked). ‘Keeping it simple’ is not part of the mantra of the top 20%. Their policies reflect innovation, relationship building and must therefore involve effective communication.
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Group Average
|
Top 20%
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Standardised Stocking Rate (SU/ha)[5]
|
11.1
|
11.5
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Live weight wintered (kg/ha)[6]
|
700
|
780
|
|
Net product produced (kg/ha)
|
213
|
258
|
Feed conversion efficiency[7]
|
29.9
|
25.4
|
|
Conversion efficiency - sheep
|
29.5
|
28.0
|
|
Conversion efficiency - beef
|
33.7
|
24.9
|
|
Gross Sheep Income per kg of product (c/kg)
|
2.88
|
3.25
|
|
Gross Cattle Income per kg of product (c/kg)
|
2.96
|
3.69
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Sheep: Cattle : Deer Ratio[8]
|
61:39:0
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47:51:1
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The gross margin earned per kg of dry matter eaten for sheep breeding is similar to 2005/06 (7.0 cents) as is the gross margin for lamb trading; 17.7 cents (17.6 cents in 2005/06). The top 20% has maintained a fantastic margin of 25.3 cents (versus 28.5 cents in 2005/06).
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Gross Margin Per KgDM
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Gross Margin Per Kg Product
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KgDM/Kg Product
|
|
Enterprise
|
Group Average
|
Top 20%
|
Group Average
|
Top 20%
|
Group Average
|
Top 20%
|
|
Beef Breeding
|
6.2
|
8.6
|
2.23
|
2.70
|
36.0
|
31.3
|
|
Beef Finishing
|
8.4
|
17.2
|
1.80
|
4.08
|
21.5
|
23.8
|
|
Cattle Grazers
|
8.4
|
13.2
|
2.57
|
2.95
|
30.7
|
22.4
|
|
Sheep Breeding
|
7.1
|
10.3
|
2.12
|
2.70
|
29.7
|
26.2
|
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Lamb Trading
|
17.7
|
25.3
|
3.73
|
5.61
|
21.1
|
22.2
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Properties that have traded lambs may not have always made more revenue than breeding ewes. You can see from Figure 1 the rollercoaster ride that the lamb market has been on in the past two years. The average seasonal trend shows a steep drop-off from November to reach its lowest level in March. In the past two years this has dropped sharper and stayed lower for longer.
Figure 1. Average schedule price and the 2005/06 and 2006/07 years for 15kg lamb in North Island.
Those who traded lambs in early summer made a negative gross margin by buying at a high price and selling at a low schedule. Of course store operators made the same loss, whilst they didn’t buy the lambs the purchase cost was locked in through the cost of their breeding flock. Buying late January and selling in autumn made a gross margin of 10 to12 cents (per kgDM eaten) while late summer purchase and autumn/winter selling made 16 to 28 cents.
An interesting result is the lower efficiency of the top 20% of both beef and lamb finishing compared with the average – that is, they use more grass to produce the same amount of product. This is because they have taken on stock which they have grown at a slow rate while they wait for the increase in schedule (stock become less efficient as they approach maintenance). However, look at their revenue per kg of product – it is higher than the product sale price. This is because they have not just made the product price but they have also increased the value of the meat initially purchased.
Many will have stocked up (as our liveweight per hectare shows) with cheap lambs from the Hawkes Bay drought even though their covers were moderate banking on reliable winter/spring growth and a good response to Nitrogen. This emphasizes how the top 20% did not stop thinking when market and climatic adversity started to bite. It is interesting that the better margin more than covered the cost of nitrogen boosted feed (12 to 14 cents in that year) and perhaps why our top farmers applied 55% more nitrogen.
What characterizes the top farmers breeding ewe enterprises? As we should expect they have a higher breeding efficiency. That is they produce a high total lamb weight at weaning compared to their ewe weight. While their ewes were slightly heavier they are more fertile, and even though they would have had more multiple births as a result they weaned lambs at a slightly higher weight.
Scanning indexes over 2.8 really require a specific sheep breeding program. It seems slightly larger sheep are also required to wean a better multiple birth lamb. It is also heartening and logical to see that those who are achieving better hogget weaning percentages are also those who are in the top 20%.
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Sheep
|
Group Average
|
Top 20%
|
Tupping Body Weight (kg)[9]
|
60.3
|
62.0
|
|
Average Birth Date9
|
08 Sep
|
08 Sep
|
|
Scanning %9
|
167
|
183
|
|
Scanning Index9
|
2.8
|
3.0
|
|
Losses - scanning to tailing (%) 9
|
21
|
23
|
|
Tailing % 9
|
133
|
142
|
|
Losses - tailing to weaning (%)13
|
1.4
|
0.6
|
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Weaning %
|
|
140
|
146
|
|
|
132
|
141
|
|
|
58
|
78
|
|
Survival - scanning to weaning (%)9
|
79
|
77
|
|
90 Day Weaning Weight 9
|
27.3
|
28.7
|
|
Average Growth Rate to weaning (g/d)
|
251
|
266
|
|
|
59
|
66
|
When it comes to breeding cows the top farmers tend to avoid them. However, the few that do have them achieve a better breeding efficiency though higher survival and weaning weight. Given the low number (2) I am reluctant to read much into this performance.
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Cattle
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Group Average
|
Top 20%
|
|
Cow weaning weight
|
499
|
510
|
|
Average Birth Date
|
04 Oct
|
17 Sep
|
|
Weaning % (of cows wintered
|
86
|
92
|
|
200-day Wean Wt (kg)
|
222
|
238
|
|
Growth to Weaning (kg/d)
|
1.0
|
1.0
|
|
Cow Efficiency (%)
|
38
|
41
|
Summary
What are some of the things you can take out of this? Farmax benchmarking provides a way for you to observe the performance of the industry for the same year you measured your own performance. We can only deduce what propels farmers into the top 20 % but I’ll put my money on the following. They are not producing any more grass but they are being more innovative about how they use it. They do not have large enterprises generating modest revenues – every enterprise earns well or it becomes a challenge to phase it out. They have taken calculated risks with finishing stock and have breeding programmes that lock in sheep fertility and generally feed their sheep better year round.
[1] Amount of extra pasture grown because of nitrogen applications
[2] This is the percentage of potential pasture growth lost due to sub-optimal pasture height and pasture lost through decay
[3] Net Pasture production is Potential plus N boost less losses
[4] Gross farm income (sales less purchases) less animal health, shearing, freight and interest on livestock.
[5] Total stock demand divided by 550 kgDM/SU
[6] Live weight at the 1st of July based on effective area
[7] Dry matter intake divided by the total production of wool, carcass and velvet
[8] Calculated from the total annual intake of each species
[9] A weighted average of ewes mobs only (hoggets not included)
[10] All lambs (including lambs from hoggets) weaned divided by ewes only
[11] Lambs from ewe mobs only divided by ewes only
[12] Lambs weaned from hogget mobs only divided by all ewe hoggets
[13] kg lamb weaned per kg ewe mated for ewe mobs only