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Working capital – the life blood of your business

Full of emotion, we go and purchase the property of our dreams. Unfortunately, we can get a few things wrong, just as I did when I purchased my own dairy farm. Now after years of experience in rural banking, valuation and finance, I have found that there appears to be one common factor that follows success, or failure and difficulty in the first season/year, and that is working capital. Insufficient working capital is one of the major traps to new property purchasers, or any business venture f...

Commercial property – it may be a better investment than residential

With the large number of houses coming onto the market in New Zealand, coupled with the slowing immigration, it may be time to look at moving from residential to commercial investments. Now you can crunch the numbers all day long, but effectively the cash return on residential seems to work out at 3 – 5%, whereas commercial is 7 – 8%. I would be first to agree that the rise in values has been greater in the residential area than commercial, however if you factor in your time for looking ...

Know Your Costs

At a recent presentation to the NZIPIM at the McMekin centre I was impressed by the thinking that is being done at Lincoln College based on both the university and industry. The logic was excellent and was well worth thinking about on any sized dairy farm. The question that was asked by the speaker at the presentation was – "Do many dairy farmers really make money?" They did a study over a number of farms in the South Island which of course can also be applied to the North Island. It was in...

How are you spending your borrowed money?

Very few people use debt to increase their wealth and this often divides the rich from the poor. This theory can be easily adapted to the lifestyler. I'm often asked "what is the point of difference between those who own one or two properties from myself?" My reply: "being prepared to acquire more assets through borrowing money and servicing the debt". Many people that are wealthy today have done just that to get to where they are. When calculating the risks in purchasing property the import...

Do you understand your Lifestyle Farming Balance Sheet?

A lot of farmers just shut down when I ask them if they understand balance sheets. So I'm going to make this as easy as I can. First there's your income – (money banked within the financial year) Gross farm income from sales $200,000 Plus your off-farm income $100,000 Total $300,000 Less farm running costs which include animal health, fertiliser, repairs & maintenance, administration expenses, stock purchases etc. They can be at least 50% ...

Commonly overlooked issues when acquiring the neighbour’s farm

When considering the purchase of a neighbour's farm, many farmers only take into account the cost of the land and maybe the stock. There are however many other issues which need to be considered, for example: The cost of additional Dairy Company shares. Do you have to pay for them up front or in the following season? Do you need to allow for additional seasonal finance to get you through until the cheques from your product sales start arriving? What is the nutrient state of the soil? Does it...

Percentage Leasing

This new system of leasing introduced by yours truly has caught the dairy industry's imagination and is being used frequently. It was initially established around 25% based on a $4 payout and a $1 for rent. Oh how times have changed! The market is indicating 22% + or – to be a more realistic figure. It allows the land owner to share in the increase in payout. Under the fixed price lease all the benefits of an increased payout goes to the lessee or the tenant. This model has been in existence...

Are dairy farm rentals too low?

A client has recently leased a small area of consolidated peat to his neighbour to dairy on for $2,150 per hectare + GST. There were no buildings, just new pasture and fences. The lease is for five years with right of renewal and that got me thinking. Thankfully land leasing is heading towards commercial lease in style and return. For farmers that means longer term, well structured leases, good returns to all parties and expectations and reviews. We talk of "economic rent". That is a fair ...

The Difference between Capital and Disposable Income

In other words looking after your money (capital) and spending the cash. An aging client recently called me to say that she wished to sell her commercial buildings which had been netting her around $40,000 for many years. That, on top of her pension would make a single 70+ woman quite well off. On further discussion it became apparent that her accountant is suggesting she should sell and spend the money, the capital that is. With an 8% capitalisation rate, the building is probably worth ...

No - Your view may not be the bank’s view

AgResearch wrote an interesting paper in 2010 from which I have gleaned a few points. New Zealand has been through a dairy boom with payouts of around $8. Now that Fonterra's predicted payout is less than $5 I thought it may be opportune to look at some of the issues, particularly around debt. Average term liabilities per kg milk solids are around $21. Banks competed for more market share and took on more risk, resulting in some very stretched farmers. Some budgets are stretched as a...

Cow Psychology

Given my reputation of writing unusual and thought-provoking stories on farming I thought some words on cow psychology would definitely not go astray. The main reason for this story is really about cow behaviour and how it differs from humans. You often hear fishermen saying: "If you want to catch fish then you need to think like a fish." Maybe, therefore, if we want to understand cows, we need to think like them. The other reason for this story is that it seems that the cow is just another ...

Where has the grass gone?

There is increasing discussion around the quality of pastures in the greater Waikato, and in fact in much of New Zealand. New Zealand's economic wealth is fundamentally based on growing grass and then converting that grass into saleable products. Isn't it? So why is pasture growth sub-standard? My personal belief is that the pasture is very short on lime. Just because the pH is around 6, does not mean that calcium is readily available in the soil. I have a client who is putting on 750 ks o...

Stored feed is like money in the bank – revised

How many times have you heard your parents say 'save some money for a rainy day'? You have definitely heard me say 'cash is king', and of course the favourite farmer saying 'stored feed is like money in the bank'. These are all old fashioned, but true statements and something we could do well to remember them, in this world of 'instant gratification'. I believe we have moved away from the traditional 'squirrel mind-set' of storing and saving, but in farming, some sort of buffer is still essenti...

Breeding is an Investment - revisited

Many older farmers have a great interest in breeding, how the progeny perform but more particularly how they will look. You only have to go to a Calf Club day and stand by those older farmers, who will talk about breed, dairy type, and performance all day long. I know that when I ran my own dairy farm, it was great to stand and talk to them about how they saw our younger stock particularly at Calf Club. Dairy farmers have a number of sources of bull semen in New Zealand. The question always ...

Look after your soil

Charles Darwin wrote in 1881 that humans would not have developed and it would be very difficult to survive on earth if it were not for earthworms turning the forest leaves and dead pasture into topsoil. Julius Caesar identified earthworms as beneficial and declared them protected. Earthworms live in the soil and the soil is the basis of our much valued rural economy which supports the larger New Zealand economy. Even Mark Weldon of NZSX is trying to get closer to the grass roots! The soil w...

Waikato ribbon development and urban sprawl is not good for our productive basin

It is of increasing concern that New Zealand's residency is spreading along roads handy to towns and cities. One only has to fly over urban New Zealand to see what is going on. Of even more concern is the loss of good, food producing land to urban sprawl. More than that, many countries have been shocked into the fact that they cannot feed themselves, and are reliant on imported food. Let's explore some of the issues around this. Firstly, the loss of food producing land. New Zealand is one bi...

The humble dairy cow should be sacred

What other animal gets up at 5am in the morning, walks 2km to the cowshed to the noise of motorbikes behind and dogs yapping? The cow happily walks into the often slippery concrete yard to wait in the queue to be milked up to 1½ hours later; to have heavy, rubber lined hanging things placed on her tender teats without any notification. Should she protest with a kick then the punishment may be a punch or a hit from someone she cannot see. These sucking things hang on there while she lets her mil...

Pointers on Cowshed Design - particularly Herringbones

Having been involved in the dairy industry my whole life, including running my own dairy farm, I thought it pertinent to cover some of the issues and pitfalls around cowshed design. But more than that, I have also assisted in financing many, many dairy conversions and cowshed renovations, and feel that some design matters need to be discussed. Location Location is the key to any cowshed. I believe that it is cheaper to have the tanker carry the milk off the farm than to walk the cows to a site ...

Cowsheds – some serious considerations

New cowsheds can be expensive. These days, they can cost up to $10,000 per set of cups with nearly half of that being for plant alone. A number of farmers are also raising the cost of cowsheds by putting in features like feed pads, etc. As well, there is an increasing trend to make cowsheds better and brighter by including more space, viewing rooms, offices and toilets etc. One of the biggest improvements, however, must be the concrete aprons which the tanker sits on whilst taking the milk from ...

Ribbon Development and Urban Sprawl

It is of increasing concern that New Zealand's residency is spreading along roads handy to towns and cities. One only has to fly over urban New Zealand to see what is going on. Of even more concern is the loss of good, food producing land to urban sprawl. Let's explore some of the issues around this. Firstly, the loss of food producing land. New Zealand is one big food producing property well away from the main markets. We have a huge competitive advantage with relatively regular rainfall, ...

Wastage on Farms

I don't want to be seen as a grumpy old man, but having just come back from The States and seen the wastage there, it has made me think about the wastage in New Zealand. I have discussed it with a number of people and it is clear that there are some serious issues around wastage. Wastage is in all aspects of our farming business and our personal lives. Some examples may include: Not ensuring that the cows are in calf and the downstream costs of that. This may happen when the cows are not bei...

Culverts and how to survive them

With the ever increasing storms that we are facing in both town and country we need to rethink how we do things. This is particularly so in the culvert and stormwater management area. It is most interesting to see that the front page article in "Straight Furrow", dated 14th August 2007, talks about "Culvert Chaos". This article talked about the results of blocked culverts causing chaos and a near death experience for a Taranaki couple. We were lucky enough to study roading, drainage, crossing ...

Copper spray – the sterilizer?

While not wanting to be seen as anti-copper spraying of avocados, or on any horticultural crops for that matter, I feel pressed to discuss some of the negative effects copper has and will have on our orchards and the environment. I am no tree hugger, but am hugely respectful of the delicate balance we have with nature and the necessity to pass our land and environment to the next generation. I mean we are really only guardians of "our" land for our lifetime and pass it on as we vacate the eart...

The soils belong to the universe

Soil is the world's most valuable resource. A recent advertisement largely written by a Professor David Bellamy was a wakeup call on how important the soil is to our very existence. In New Zealand, we have only a few soil enthusiasts so to speak. Professor Walker from Lincoln University, who is now growing vegetables in Christchurch and seen on T.V. is one example. You then have a full range of people, all utilising their own "theories" to run fertilizer companies based on their theory of best...

Dairy farming life in South Westland

While recently revisiting dairy farming clients in South Westland's HariHari, I had the opportunity to talk to a number of the locals and compare our lifestyles. Most would expect a "Coaster's" life to be different to ours on the North Island's sunny east coast, but how vast that difference is, may just surprise you. Weather It is hard to imagine but my clients endure two metres of rainfall each year. In fact, when they first arrived in the district, it rained for six days straight, with each...