Navigating tough financial times

What helps successful farmers navigate challenging times 

It’s certainly a challenging time for sheep and beef farmers right now. Margins are squeezed by subdued market prices particularly on sheep meat and wool, and on the cost side through on-farm inflation which, while slowing, is still significant. Regulatory costs have also increased. 

So what are the characteristics of farmers who successfully navigate difficult financial times? 

Beef + Lamb New Zealand has been collecting on-farm physical and financial data across 500 farms for over 70 years through our Sheep and Beef Farm Survey, so we’re able to look at farm performance and profitability through many farming cycles - including some more severe than we are facing today. 

Driving productivity 

There is no silver bullet to better profitability, as most farmers know. Instead a series of steady, incremental improvements is required to improve farm efficiency. As case studies we’ve used data from the two most prevalent Farm Classes for each Island: Hill Country farms (Farm Class 4) in the North Island and Finishing Breeding farms (Farm Class 6) in the South Island. 

Using this data, the top 20 per cent of farm businesses ranked by Earnings Before Interest, Tax, Rent and management (EBITRm) per hectare were analysed for drivers of profitability.  

The data shows that high performing farms consistently had better results across many categories, which create higher gross farm revenue and significantly higher profit margins.  

There are a number KPIs that these farms succeed in consistently:  

• higher ewe lambing percentage (that is, lambs weaned per ewe mated). 
• higher calving percentage. 
• higher percentage of ewe hoggets mated ‘successfully’ (percentage of total lambs that were born to hoggets). 
• low stock losses.
• heavier lambs/cattle at sale (good feeding, higher growth rates). 

This equals more meat production per hectare. 

For these businesses, lambing, calving, and fawning percentages were above average consistently across seasons. High performing North Island Hill Country farms, for example, produced 10 more lambs per 100 ewes than average across 10 years. 

There is a simple formula that you can use for reproductive performance, in fact all animal performance. It is: Animal Performance = Genetics + Feeding + Animal Health and Welfare. 

High performing farms get the fundamentals right repeatedly. More animals born means more animals to sell so the advantage is there immediately. Add to this, these farms had lower livestock losses for both young and adult classes of livestock. Improving the genetics of your flock/herd can take time but feeding and animal health can be immediate. 

High performing farms generally have higher stocking rates per hectare, apply slightly more fertiliser per hectare overall and apply more nitrogen to pasture. The results? Heavier weights for lambs, ewes, and cattle. This indicates good feed management planning that results in good growth rates for livestock. 

These farms prioritise feeding which ensures good condition of ewes, ewe hoggets and breeding cows at mating, resulting in good pregnancy scanning rates, good condition at lambing/calving, and following through to weaning. This ensures high finishing stock growth and saleable weights to coincide with higher schedules.  As we hit the summer months thinking about how you set up your ewes (and hoggets if applicable) for a successful mating is crucial. 

Although farmgate prices are an area that farmers have less control over, high performing farms generally get higher per kilogram and per head store and prime prices for sheep and cattle. This may be due to timing of sales, premium programmes, fewer penalties, and farm policies that help with decision making and trigger points to sell livestock. 

Managing costs 

Expenses on high performing farms are above average on a per hectare or per stock unit basis – the data shows that these farms spend a little more on areas that will bring higher productivity as reflected in high gross margins.  

High performing farms spend more on fertiliser, feed and grazing, and repairs and maintenance, suggesting they have farm infrastructure that supports high performance.  

High performing South Island Finishing and Breeding farms spend more on cropping expenses and also have the highest returns from cropping within the survey farms. What’s the conclusion that we can draw here? It’s that these farmers make every dollar count, and they ensure that they don’t compromise feeding. 

Every farmer’s debt/equity situation is different and where you are in the farming or development cycle varies too. 

But some key financial management aspects that apply across all farms right now is using financial advice to manage provisional tax payments, consider debt repayment schedules, postpone non-critical capital expenses and development investments, look at sales and expenditure timing, and with cashflow planning and your banker or adviser, see if it’s possible to minimise overdraft interest. 

Noting that fertiliser, seeds, animal health, feed and grazing, and wages make up around 36 per cent of total farm expenditure, many farmers will be applying a ‘nice to have’ vs a ‘need to have’ ruler across everything. For example, with fertiliser, undertake a comprehensive soil testing programme so that every fertiliser dollar is spent for the most benefit. Over the past two years, sharp fertiliser price increases have already significantly reduced fertiliser usage.  On this basis there may be little room to reduce expenditure on fertiliser without impacting on next season's production. 

Key metrics 

The tables below summarise KPIs across the two most prevalent Farm Survey farm classes for each Island: Hill Country farms (Farm Class 4) in the North Island and Finishing Breeding farms (Farm Class 6) in the South Island. 

Table 1: North Island Hill Country farms (Farm Class 4) 2012/13 to 2021-22 

Table 2: South Island Finishing Breeding farms (Farm Class 6) 2012/13 to 2021–22 

Note:  

1) Mean for 10 years from 2012–13 to 2012–22,  2) Top 20% when ranked by Earnings Before Interest, Tax, Rent and Managerial Salaries (EBITRm) per ha (grazeable). Source: B+LNZ Sheep and Beef Farm Survey.

B+LNZ resources that could help right now

• Podcast with George Collier: "Managing cash and feed to get through tough financial times".
• Podcast with Tom Fraser podcast: Tactics tight times.
• Use the B+LNZ profitability calculator – take your annual accounts (or estimates if comparing a more recent season) and benchmark your profitability with other farms in your region and farm class. To dig into more Farm Class and regional data, B+LNZ produces benchmarking reports that detail physical and financial figures. 
• KPIs and measuring farm performance: Benchmarking.
• B+LNZ's Sow, Grow, Thrive webinar series which has some gems from accountants and farm consultants.
• Genetics: Ram selection tools and Bull selection.
• Feed budgeting and management. 
• Sheep performance – Making every mating count (PDF, 2.1MB).
• Lamb growth – 400 Plus Guide (PDF, 1.389KB).
• Beef performance – reproduction and growth. Read more in the Guide to New Zealand Cattle Farming (PDF 6,6MB).