Planning ahead despite all
Setting a budget is an essential part of keeping the business under control at Dowrich, whatever the market throws at it. Philip Clarke reports
DOWRICH is unlikely to emerge unscathed from the dramatic events of the last 10 days over BSE.
Having had just one case, albeit from a bought-in heifer five years ago, the herd has not enjoyed "BSE-free" status for some time. Anthony Lee reckons this has cost the business 10p/kg for every cull cow sold, equivalent to £1500 a year.
Pale into insignificance
But that could pale into insignificance as the effects of the BSE crisis mount up.
With all-year-round calving, Anthony is better off than some dairy farmers, in that any market fluctuations are spread over 12 months. But West Midland Farmers, which takes most of Dowrichs culls, was unable to give a quote this week due to the total absence of any buyers. Nationally, average prices have fallen 25% to 61p/kg liveweight and it could be many months before any of that drop is recovered.
The spectre of a slaughter policy for dairy cattle over 30 months has gone for now. But it could re-appear at any stage, threatening the value of the farms 1.354m litre quota holding.
But despite these worrying developments, the Lees are not planning any adjustments to their 1996/97 budget, recently compiled with the help of Genus consultant Norman Ford.
As Mr Ford explains: "A farm budget is like a road map. If you go off course, at least you know where you are relative to where you should be going."
Anthonys father Michael Lee agrees – a budget helps him keep a steer on the business. "Cull cows may well do worse than we had budgeted for, but pigs will now probably do better."
The Dowrich financial year end is in April, but the budget has already been drawn up using draft farm accounts for the nine months to January as a basis for the 1996/97 season.
A brainstorming session between Mr Ford and the Lees set out the basic aims for the year ahead, as follows:
• To expand the business.
• To invest in the business.
• To improve efficiency.
They then set about deciding on ways of achieving these aims and putting them in an order of priority.
On the dairy side of the business, the emphasis is on reducing dependency on off-farm quota and improving dairy cow efficiency.
To this end, the budget calls for a reduction in cow numbers from 250 to 233 and a yield increase from 5600 to 5800 litres a cow.
While this gives a lower total volume, by increasing yield from forage and achieving a higher milk price (26.7p/litre compared with 26.3p for 1995/96), total dairy gross margin should remain constant at £268,000. This will also free up more land for other uses, notably potatoes and wheat.
The budget also allows for 176,000 litres of quota to be bought or leased – compared with 232,000 litres this season. With respect to livestock sales, the Lees have budgeted for a £5 drop in average finished pig prices to £85 a head. But numbers sold should rise from 3300 to 3600, following the difficult 1995/96 season which was characterised by summer drought and a frosty winter.
Culls and calves are also costed at similar levels to the current season – £500 and £150 a head respectively – though the Lees accept these are now unlikely to be achievable.
On the costs side, again the budget reflects this seasons values, with some minor adjustments. For example, concentrate costs have been raised £10 to £135/t.
Money has also been allocated for investment, including £40,000 for a new livestock building and £20,000 for new machinery – notably a bed tiller and sprayer for the potatoes. Both these investments should help with the objective of improving efficiency.
With the budget in place, the Lees are then able to keep a monthly check on how the business is performing. Using a Genus programme, Anthonys wife Elizabeth and sister-in-law Helen input the relevant cashflow data and see how gross margins stack up each month against target.
"In this way, the business is under control and the planned investments can be made with confidence," says Mr Ford.
Meanwhile, outside of the farm office, land work has been interrupted by the wet end to winter. All the wheat, grazing and silage fields have had one application of 34.5% ammonium nitrate, together with some slurry. A bulk load of 15.15.15 compound has also been acquired from Mole Valley Farmers to top up the silage land, but has yet to be applied.
And with just a few days to go to the end of the milk year, production has been reined in to just 1.5% over quota – helped by the purchase of 12,000 litres of Channel Island quota – though Anthony still expects to have a small super-levy bill to pay.
Genus consultant Norman Ford (left) goes through the figures with Anthony Lee. Budgets are like a road map, he says.