How budgeting helped identify farm’s scope for dairy

Long-term budgeting at Hilley Farm in Shropshire has resulted in a more resilient, more profitable business that is better able to support three families.

Only by understanding long-term business projections did the Jones family have the confidence in 2022 to switch from a suckler herd – which was in the top 25% for gross margin nationally – to a 390-cow, spring block-calving dairy herd.

The move has increased gross margin by between £988/ha and £1,977/ha.

See also: How brothers secured future with second autumn-block herd

Budgeting has always been at the heart of business decisions for the family, allowing them to track performance, make improvements and, ultimately, safeguard their business on their tenanted farm.

Henry and Annie Jones © Richard Stanton

“We want to be the best we can and do it to the best of our ability,” says Annie Jones, who farms with her husband, Henry, father-in-law, Barry, and Henry’s uncle, Peter. “Budgeting is crucial. You can’t run a medium-to-large farm business without knowing your figures.”

In 2019, a number of factors made the family question the viability of the mixed farming business.

The ending of the Basic Payment Scheme was in sight, a 20,000-bird pullet-rearing arrangement was wound up, and the family lost their rented arable land.

This left them with a 150-cow Limousin-cross suckler herd and the need to maximise the potential of the 182ha (450 acres) of grazing land around the farm.

© Richard Stanton

Expert advice

Their consultant, Sarah Lea of P&L AgriConsulting, undertook a five-year total farm budget to assess the impact of changes to farm profitability (see “Budgeting tools used at Hilley Farm”).

There was limited scope to improve margins in the beef herd as they were already top performers.

The only way to do this was to increase numbers to such an extent it was no longer feasible.

Enterprise budgeting was then carried out to determine potential gross margins on different systems.

A spring block-calving dairy was the clear winner. Based on national figures for the top 25% performing herds in 2020, the predicted improved gross margin, before forage costs and overheads, was £1,302/ha more than beef.

“It made sense on the land we have here, as it’s heavy ground and it grows grass well,” Annie explains.

And with the farm located on the River Severn, with 81ha prone to flooding, grazing with livestock was the only viable option.

“The [grazing] platform lent itself to the system and most of the tracks were already there,” adds Henry. “It was all stock-proofed and ringfenced.”

There was also cubicle housing for 150 head and loose housing for 200-300.

The whole family was keen for the change and the opportunity to revitalise the business.

“A big reason for converting to dairy was to aid succession and make us more profitable,” Henry says.

A reverse budget was used to determine the cows and litres needed, based on land and overheads.

Henry and Barry also visited about 40 spring block-calving dairies and costed out “every nut and bolt”.

It meant they knew the finer details, such as how many metres of water pipe were needed.

© Richard Stanton

Funding bid

Armed with this information, a five-year budget (using 27p/litre as their breakeven milk price), a Swot (strengths, weaknesses, opportunities and threats) analysis and a presentation of their plans, the Joneses were in a strong position to approach lenders, eventually settling on Oxbury.

“We wanted to front-load the whole thing so we could borrow enough money to get going with a lot of cows,” Henry says.

The money was used to finance a 40:80 parlour, ring main, troughs and fencing.

In-calf and bulling heifers were bought from spring block-calving herds, giving the family an immediate 240-head in their desired block.

Numbers have since increased to 390 by breeding their own replacements. The aim is to hit 450-500 cows, with infrastructure designed to support higher numbers.

Annie says increased land availability will facilitate this, adding: “If we can improve kilos of dry matter per hectare on the grazing platform, we can increase numbers, but at the moment, 450 looks comfortable.”

This improvement will be achieved through an ongoing reseeding policy and grazing management.

Budgeting and benchmarking (the Joneses are part of a grass-based benchmarking group) remain important tools.

Using these to tweak business performance will help the family achieve their goal to always be in the top 10% of producers for cost of production.