5th November 2016
Late Spring?
There’s a touch of the “mid-spring blues” around. It’s been a great spring for rainfall and growth
Benchmarking Made Easy
but it’s missing one vital ingredient – heat. Lambs are missing that bloom that they get when
Truck Weighing Stock
they are able to eat clover and sunbathe, and there are a lot of dags around with the soft feed.
B+LNZ Season Outlook
Cropping programmes are 2-3 weeks behind schedule almost throughout the country due to
wet soil conditions and slow establishment. There’s some big silage gear on the road as the stuff is cut, dried and loaded
between showers. But it beats a dry spring any day!
In Northland, conditions have dried out a bit and both sheep and cattle are doing well. Local trade is sucking a lot of beef out but
there’s a dilemma around what to replace it with on a strong store market that will make any money? A spin-off of high house
prices in Auckland is seeing cash buyers rolling out of Auckland and stepping into medium-sized drystock and dairy operations
within an hour of the city. Many haven’t thought through the implications of farming livestock!
Better conditions in the Waikato/King Country have seen some farmers wean earlier and sell more store to try to avoid a falling
market.
It’s a similar picture in Gisborne where the “feed is great, but the lambs aren’t”. Ewes and cattle are generally doing well.
Cropping is 1-2 weeks behind in the Manawatu. Cattle are too dear and they’re waiting for the main wave of store lambs to
come onto the market.
Spread in Store Lamb Prices. Weaner Bulls Sell Well
Store lambs at Stortford have been selling well ($2.85-$3.00/kg), where even the smaller lambs (24 kg) are meeting firm
demand. There weren’t enough lambs in the Feilding sale to make a stew out of.
Prices at the Feilding calf sale on Thursday were relatively buoyant: 100 kg F bulls $430-$450, 105-110 kg $485-$510 and 115125 kg $500-$550. White-faced beefies made $590-$655 (110-120 kg) and $595-$600 (105 kg). Heifers made $560-$620 (110kg)
and $520-$550 (100 kg). The heavier 2yo steers and yearling bulls were back slightly at Feilding. Other cattle classes were fully
firm on previous weeks. Store cattle prices are equally strong in Canterbury where they are having a boomer of a spring.
The Stronger $NZ is putting downward pressure on beef schedules. Meat companies would like to see the lamb schedule come
back but there are very few new season’s lambs to kill at present due to the colder spring.
Milk Price Heads North
With the whole milk powder price in the latest GDT increasing 19% from US$2800/t to US$3371/t, Fonterra suppliers are
building an expectation that the 2016-17 season milk price will go above the current $5.25/kgMS. As the bank account recovers,
there will be a stepped response by farmers. The first priority will be a return to true maintenance expenditure. Phosphate,
sulphur, race materials and wire will reappear on the shopping list. Over $2.50 per kg MS has accrued in debt for the average NZ
dairy farm. There will be demand from financiers to pay some of that back. Dairy farmers will also need to make provision for the
50 cents advance Fonterra provided last season as a loan. Interest is payable on this sum from June 17 and compulsory principal
repayment occurs once monthly receipts exceed $6/kg MS. The next step will be a recovery in the national herd size. There is a
shortage of mature and R2yr capital stock in the market.
AT A GLANCE (NI)
Store Lambs 2016 (27-30 kg)
Export Lamb
Yearling Store Steer
P2 Steer
(295 kg)
Bull
(295 kg)
Local Trade Beef (220 kg)
Strong Wool Indicator
90-day Bill Rate
US Bull Price (c/lb US)
$NZ/£UK
NZ/$US
-2 weeks
$3.30
$6.00
$3.60 - $3.80
$5.45
$5.15
$5.55
455
2.12%
210
-1 week
$2.80-$3.00
$5.90- $6.00
$3.60 - $3.80
$5.40
$5.15
$5.45
455
2.12%
210
This Week
$2.80-$3.00
$5.80-$6.00
$3.60 - $3.80
$5.35
$5.10
$5.35
438
2.13%
208
0.5860
0.7172
0.5860
0.7172
0.5864
0.7304
Trend
=

=




=
Change

=

-2c
-10c
-5c
-5c
-10c
-17c
+1.8%
Benchmarking Made Easy
At the Wairarapa Beef+LambNZ Farming for Profit Field Day on Thursday, Sully Alsop of BakerAg outlined the value
that benchmarking can add to your business.
According to B+LNZ surveys, 80% of farmers believe they are in the top 20% of performers. That means that 60%
have got no idea of how they are performing!
Although BakerAg offers a comprehensive benchmarking service, you can do a lot of this yourself. Most of the key
information you need to benchmark the important KPIs for your business is at your fingertips in your annual
accounts, you just need to know where to find it.
Some farmers expressed reticence to benchmark themselves because they feared “bad news”. The message here was
to go on the front foot and use benchmarking to identify opportunities in your business.
Why Would You Benchmark?
1. Know where your business performance lies.
2. Know what you do better than most.
3. Know what your weaknesses are.
4. Develop a plan to leverage your strengths and eliminate your weaknesses.
5. Business planning – KPI’s
Sully’s Top Four KPI’s (key performance indicators)
Example
1. Gross Farm Revenue (GFR)
$1,000/ha
2. Standard Farm Expenses (SFE)
$ 550/ha
Depreciation
Wages of management
3. Economic Farm Surplus
$ 350/ha
4. Interest & Rent
$ 250/ha
55% of GFR
25% of GFR
Gross Farm Revenue (GFR) per hectare and per stock unit
Gross Farm Revenue
= all sales minus all purchases +/- a stock adjustment
Includes rebates, wool, cropping revenue
I use GFR per hectare on a whole farm basis.
What to Watch Out For

Generally, try to stay away from per stock unit analysis, but broken down per class (GFR per sheep stock unit) it
can be a good indicator of how well stock are performing.

To find in your accounts: look for Statement of Financial Position in your accounts. Sometimes called Statement
of Profit and Loss. Divide by your effective area.

If you have had big changes in livestock numbers from open to close, stock adjustment is important. (Most have
the stock adjustment taken into account, but some don’t. So if you’ve got 500 fewer ewes on hand at close
compared to opening, you need to deduct the sale value of those 500 ewes from gross farm revenue. If your
ewe numbers have gone up 500, you would add the value of those ewes to your gross farm revenue.)

If your animals are on NSC values versus Herd scheme values, it may be a little bit out.
Standard Farm Working Expenses

Standard Farm Expenses (SFE), also called “Farm Working Expenses”, is all the costs to run a farm. It excludes
depreciation, interest, rent and debt repayment. If you work out your SFE as a % of GFR it is a good indicator of
how efficient your spending is. A figure under 55% is really good, providing you are fully maintaining the
business.

To work out SFE as a % of GFR = SFE divided by GFR

To find in your accounts: Best page is “schedule of expenses” as it breaks it down. This can sometimes be at the
back of your accounts.
Things to watch out for:

Make sure it excludes interest, rent, and depreciation. Interest and rent are often in “standing charges”. Might
need to pull this out.

If you haven’t applied maintenance fertiliser in that year, you should really add back the cost of doing so, to
compare your figure with others’.

The same applies to R & M. But if you have had a major R & M project, like a house re-build which is a one-off,
this can be excluded.
Economic Farm Surplus (EFS) Per Hectare

EFS = GFR – SFE – Depreciation – Wages of Management

You already have GFR and SFE.

Generally, wages of management is standardised. This is to account for the drawings or labour/management
input of an owner of the business. Use a figure of somewhere between $50,000 to $80,000 depending on the
size of your business.

Depreciation will usually be on the same page as your farm expenses (but often down the bottom). If that fails
there will be a “fixed asset & depreciation schedule” with one of the columns giving total depreciation.

Another common “KPI” similar to EFS is earnings before interest, tax, and rent (EBITR). This is calculated as:
EBITR = GFR minus SFE and depreciation
Debt servicing per hectare and % of gross farm revenue

This includes and interest and rent but also hire purchases. With rentals paid to family trusts, you will need to
include any part of the rental that is used to pay external interest in the trust, but exclude anything else.

To find in your accounts: Again this will be found in the “schedule of expenses”.
What to compare it with?
Appended to this AgLetter are some tables that list the average and top 10% benchmarks from the BakerAg and
Beef+LambNZ - Economic Service databases, for the 2014-15 year. These are for typical east coast sheep and beef
breeding properties.
Truck Weighing Stock
Truck weighing of stock is now the most common method of valuing stock for store transactions.
The accuracy of this process has improved in recent years. Occasionally discrepancies arise. Possible causes may
include:

Truck weight disagrees with a pre-shipment farm weight. Possibly due to inaccurate farm weight (due to
insufficient sample size or inaccurate scales). Stock not stood for min. 3 hours. Truck delayed in pick-up.
Sometimes an adjustment is negotiated where this delay is more than 3-4 hours, particularly in hot weather.

Truck not weighed accurately. Some weigh bridges are too short or too narrow to get all wheels of each unit on
at once, especially with the larger 10-wheel units. Weighing individual axles is not as accurate. Only certified
weigh bridges should be used and the truck driver must be prepared to get out and walk around the truck to
ensure that all wheels are loaded at once.

Inaccurate tare weight. Instruction to pick up stock may come while a truck is in the area, i.e. doesn't take tare
before picking up stock. Uses yesterday’s tare. Should be tared before loading and once unloaded, with the same
weighbridge used for tare weight and loaded weight. Stock should be weighed at approved weigh bridge closest
to the point of origin. If empty when tared, the truck effluent tank should not be emptied before stock have been
weighed.

Allowance should be made for fuel use if more than 100 km round trip since tare weight taken.

If an adjustment is to be made for wet and/or muddy sheep - this must be agreed with the vendor before the
stock are trucked and weighed. E.g. very wet lambs may be carrying 0.3-1kg of extra weight of loaded fully wet.

Vendor should request to see dated tare weight and loaded weight docket if in doubt. Many vendors follow the
truck to the weigh bridge.

Typically, the vendor pays the weigh bridge fee, and the cost of weighing multiple lines in a shipment.
B+LNZ Economic Service “New Season Outlook”
This report has just been released. The following is a summary of the key points:
Warning – reading this could be hazardous to your health….

Weak growth and economic uncertainty dominate conditions among our main trading partners: UK (Brexit), US
(election), China (slow growth) and Europe (slow economic recovery).

Written in July 2016, pricing in this forecast is based on more favourable exchange rate conditions that what we
currently have: USD0.67 (currently 0.7330), GBP0.54 (0.5890), EUR0.61 (0.6600).

Sheep numbers at 30 June 2016 provisionally totalled 28.3m head, down 3.0% on the previous June. This was
driven by culling older ewes, the impact of facial eczema in the North Island, dry summer conditions in some
regions and a shift in emphasis to beef production.

Beef cattle numbers at 30 June 2016 provisionally totalled 3.65m head, up 2.8% on the previous June. This was
predominantly driven by strong beef prices relative to sheepmeat.

For the year ending September 2017, the export lamb slaughter is forecast to decrease 1.8% to 19.5m head,
reflecting a smaller lamb crop (-2.4%) and sufficient replacements retained to leave sheep numbers little
changed at 30 June 2017.

At the mid exchange rate of USD0.67, the annual average lamb price is estimated at $4.85c/kg for 2016–17,
largely due to a weaker pound sterling following the Brexit referendum in late June.

For 2016–17, the export cattle slaughter is forecast to decrease 1.5% to 2.45 million head. This represents the
second year of decline from the elevated level of production in 2014–15, which was boosted by a high dairy cull
cow slaughter. At the mid exchange rate of USD0.67, the annual average beef price is estimated at $4.67c/kg for
2016–17 (revised), a 2.5% decrease on the provisional price for 2015-16.

For 2016–17, total wool production is forecast to remain almost static (-0.4%) with an increased clip per head of
shorn wool nearly offsetting a reduction in slipe wool and the impact of a 3% decline in the sheep flock. For
2016–17, the overall annual average auction wool price is forecast to decrease 13% on the previous year.

Gross farm revenue for the All Classes Sheep and Beef Farm is estimated at $433,900 per farm for 2016–17,
down 3.8% on 2015–16 largely from decreases in revenue for wool, sheepmeat and dairy grazing.

Total expenditure for the All Classes Sheep and Beef Farm is estimated to decrease 1.9% to $366,900 per farm
for 2016–17. Decreases come from lower expenditure on interest through lower interest rates, and on fertiliser
and repairs and maintenance linked to lower gross farm revenue. Fertiliser, interest, and repairs and
maintenance make up 36% of total farm expenditure.

Farm Profit before Tax for the All Classes Sheep and Beef Farm for 2016–17 is forecast at $67,000 per farm,
down 13% on the previous year. Real (i.e. inflation- adjusted) Farm Profit before Tax is down 14 % on 2015–16
to $52,300 per farm, the lowest since 2009–10.

The table appended to this AgLetter (P8) gives an idea of the sensitivity of forecast prices to the exchange rate.
E.g. at high exchange rates of 0.74 US, 0.59 GB and 0.67 EU, the forecast season average lamb, beef and wool
prices would be $4.17 ($76/hd), $4.23 ($1171) and $334c/kg respectively.
Have you bought that Lotto ticket?

A woman arrived at the Gates of Heaven. While she was waiting for Saint Peter to greet her, she peeked through the
gates.
She saw a beautiful banquet table. Sitting all around were her parents and all the other people she had loved and
who had died before her. They saw her and began calling greetings to her …” Hello, how are you! We've been
waiting for you! It's good to see you."
When Saint Peter came by, the woman said to him, "This is such a wonderful place! How do I get in?"
"You have to spell a word," Saint Peter told her.
"Which word?" the woman asked.
“Love … ”
The woman correctly spelled out 'L-O-V-E', and Saint Peter welcomed her into Heaven.
About a year later, Saint Peter came to the woman and asked her to watch the Gates of Heaven for him that day.
While the woman was guarding the Gates of Heaven, her husband arrived.
"I'm surprised to see you," the woman said. "How have you been?"
"Oh, I've been doing pretty well since you died," her husband told her." I married the beautiful young nurse who
took care of you while you were ill. And then I won the multi-state lottery. I sold the little house you and I lived in
and bought a huge mansion.
And my wife and I travelled all around the world. We were on vacation in Cancun and I went water skiing today.
I fell and hit my head, and here I am. What a bummer! How do I get in?"
"You have to spell a word," the woman told him.
"Which word?" her husband asked.
"Czechoslovakia”
OTHER INDICATOR PRICES
SI Lamb Schedule
NI Local Trade Beef
NI 220-245 kg P Cow
$5.50
$5.45
$3.90
SI P Beef Schedule
NI 220-245 kg M Cow
NI Venison 60 kg stag
$5.30
$2.90
$8.60
PGG Wrightson Ltd Wool Sale Report
27th October 2016
US $0.7121
0.7121
STRONG SEGMENT INDICATOR
TYPE QUOTES
H Fleece
H Fleece
H Fleece
Ewe Fleece
Ewe Fleece
2nd Shear
2nd Shear
2nd Shear
Lambs
Lambs
33m 2-3"
35m 2-3"
37m 2-3"
36 m 4-6"
38m 4-6"
39m 3-4"
39m 3-5"
39m 2-3"
29m 2-3"
30m 2-3"
-1.7%
Napier
438
-17
SALE PRICE
(Clean)
YIELD
SALE PRICE
(Greasy)
CHANGE ON
LAST SALE
411
431
n/a
465
n/a
n/a
n/a
410
n/a
n/a
76%
76%
76%
76%
76%
80%
80%
80%
80%
80%
312
328
-2
+6
353
-18
328
-4
NOTICES
A priest and a rabbi were sitting next to each other on an air-plane.
After a while, the priest turned to the rabbi and asked, "Is it still a requirement of your faith that you not eat pork?'
The rabbi responded, "Yes, that is still one of our laws."
The priest then asked, "Have you ever eaten pork?"
To which the rabbi replied, "Yes, on one occasion I did succumb to temptation and tasted a ham sandwich."
The priest nodded in understanding and went on with his reading.
A while later, the rabbi spoke up and asked the priest, "Father, is it still a requirement of your church that you remain
celibate?"
The priest replied, "Yes, that is still very much a part of our faith."
The rabbi then asked him, "Father, have you ever fallen to the temptations of the flesh?"
The priest replied, "Yes, rabbi, on one occasion I was weak and broke my Faith."
The rabbi nodded understandingly and remained silent, thinking, for about five minutes.
Finally, the rabbi said, "Beats the hell out of a ham sandwich, doesn't it?"
STORE MARKET REPORT
Southern NI prices quoted in saleyards unless otherwise stated.
SOUTHERN NORTH
ISLAND
Store Lambs (2016)
Male & MS
Works Ewes
Heavy Export Ewes
Local Trade Ewes
Heavy
Medium
R2 Steers
Traditional
Cross
R2 Heifers
R2 Friesian Bulls
R1 Steers
(Traditional)
(Exotic)
R1 Heifers
R1 Friesian Bulls
Friesian Bull Calves
Beef Cross St Calves
Beef Cross Hf Calves
CANTERBURY
OTAGO/SOUTHLAND
35-40 kg
30-35 kg
25-30 kg
<25 kg
22-24kg
28kg
$2.80-$2.90
$2.90-$3.00
$2.90
$2.80-$2.90
$78-$83
=
=
=
=
=
$2.50
$2.50
$2.60
$2.50
$3.00
$87-$90
=
=
=
=
=
=
$2.80
$75-$84
=
=
=
=
=
=
28kg
25kg
$75-$80
$70-$75
=
=
$84
$75
=
=
$75-$85
$70
=
=
450-500
450-500
350-400
400-450
260-320
240-260
220-240
250-280
220-250
200-250
200-230 kg
240-280 kg
100 kg
110kg+
$3.00-$3.20
$2.80-$2.90
$2.80-$3.00
$3.00-$3.10
$3.15-$3.60
$3.50-$3.60
$3.80-$4.20
$3.40
$3.30-$3.60
$3.70-$4.20
2.90-$3.00
$2.80
$430-$460
$485-$500

=


=









$3.00
(finished)
$2.80
(finished)
$3.30-$3.50
$3.40
$3.70
$3.50
$3.20
$3.50
$3.00
$2.90
=
=

=
=
=
=
=
=
=
=
=
$3.00-$3.10
$2.90 (finished)
$2.80-$3.00
n/a
$3.30-$3.35
$3.30-$3.50
$3.50
$3.40
$3.00
$3.10
$2.80-$3.00
$3.15-$3.20

=

=
=
=
=
=
=
=

=
110+ kg
105+ kg
$580-$610
$520-$560


Carry out benchmarking on your business:
Total Figure
1
2
Per Effective
Hectare
BakerAg 2014-15
Average
B+LNZ 2014-15
Average
Gross Farm
Revenue
$922/ha
$814/ha
Standard Farm
Expenses
$500/ha
$473/ha
54%
58%
SFE % of GFR
3
Depreciation
Wages of
Management
Usually on “schedule of expenses”
$29/ha
$71/ha
This is a standardised figure. Use between $50,000
and $80,000 depending on size of business.
$324/ha
= GFR – SFE – depreciation – wages of management
= 1 - 2 3
4
EFS
EBITR
$395/ha
$312/ha
$165/ha
$137/ha
Debt servicing
Debt servicing %
GFR
Generally on “Statement of financial performance”
Don’t forget stock adjustment (see above)
If you’re clever, check for Herd scheme vs NSC values
Look for “schedule of expenses”
Don’t include interest, rent, or depreciation
Divide SFE by GFR
$27/ha
4
Helpful Hints:
= GFR – SFE – depreciation
= 1 - 2 3
Includes interest, rent, and hire purchase
Divide debt servicing by gross farm revenue.
18%
17%
Other Figures to Benchmark:
SU/ha
Lambing %
Ave Lamb Price
Gross Farm Revenue
Standard Farm
Expenses
SFE % of GFR
Depreciation
Wages of
Management
EFS
EBITR
Debt servicing
Debt servicing % GFR
BakerAg 2014-15
Average
BakerAg 2014-15
Top 10%
B+LNZ 2014-15
Average
B+LNZ 2014-15
Top 20%
8.9su/ha
9.6su/ha
9.0su/ha
9.9su/ha
135%
142%
123%
131%
$89/hd
$90/hd
$87/hd
$87/hd
$922/ha
$1,186/ha
$814/ha
$1,135/ha
$500/ha
$552/ha
$473/ha
$465/ha
54%
47%
58%
41%
$27/ha
$24/ha
$29/ha
$32/ha
$71/ha
$89/ha
$324/ha
$520/ha
$395/ha
$609/ha
$312/ha
$628/ha
$165/ha
$154/ha
$137/ha
$210/ha
18%
13%
17%
19%