Planning for disaster while dodging a bullet

Daffodil
Today’s blossoming of the very first daffodil reminded me we’re on the cusp of Spring – our 12 weeks of make or break on the farm.

Only yesterday, a banker asked me how the outlook was on farm. Anxious is the answer.

The feed pinch
The big dry has sent grain futures soaring, signalling that we’re in for exorbitant grain prices by Christmas.

Meanwhile, it’s been very hard to grow grass and the dry subsoils provide little moisture in reserve for what the Bureau is predicting will be a drier-than-normal Spring.

While we’ve invested heavily in a small amount of irrigation infrastructure, the dam is still well below full and we have no access to the aquifer.

At the same time, high quality hay suitable for the milkers is in very short supply, so I’ve been trying to lock in feed this harvest before it becomes too tight to mention.

The money pinch
Most dairy products are either traded internationally in US dollars or sold to domestic customers at a rate linked to international commodity prices.

This means that as the Australian dollar rises against the US dollar, the value of our milk falls. And rise it has, reaching 80 cents for the first time in two years.

Green shoots bring hope
On the other side of the ledger, there’s been cause for hope this morning.

Despite the exchange rate fears, the processor we supply, Fonterra, lifted its price for milk from $5.30kgMS to $5.50kgMS (from roughly 40.5 cents per litre to about 42 cents).

Second, I found a heap of worms slithering across the track in a bid to avoid the saturated soil. Yes, saturated! For the first time this winter, we finally have soft top soils.

Better late than never. Let’s hope the rain keeps coming and we don’t need to feed the cows massive amounts of grain to get through another drought.

Worm

Solar at the dairy: how to crunch the numbers

SolarDairy

I’d love to install a solar system here on the farm but since we use most of our energy in the dark or at sunset, it’s a real challenge make it affordable. I’m really grateful to dairy energy expert Gabriel Hakim of AgVet Energy in Warragul for writing this guest post on how to crunch the numbers!

Energy Audit with Gab

Gabriel Hakim and Wayne check out the dairy during an energy audit back in 2012

With the backdrop of the recent closure of Hazelwood, and continued uncertainties over supply and prices more and more dairy farmers are asking “Can solar work for me?”.

The way electricity is consumed on most conventional dairies – early morning, late afternoon, and overnight – means it is a challenge to maximise the direct benefits of solar.  In southern Australia, most of the electricity generated by photovoltaic panels (PV) occurs between milkings, during the middle of the day.

How this electricity is used has huge implications for the economics of PV.  The three broad options are:

  1. sell all unused generated electricity into the grid;
  2. store unused generated electricity and use it later; and
  3. change the timing of electricity-using tasks so they make use of the electricity as it is generated.

The reality of course, is to deploy a combination of these options. This post explores option 1 for installing solar on an existing dairy with:

  • Twice-a-day milking. 6:00 – 9:30 am and 3:30 – 6:00 pm (includes milk cooling time)
  • 450 milkers calving all year round
  • 40-50 units
  • Conventional cooling (glycol chiller, with final direct expansion cooling in vat)
  • Conventional cleaning (warm pre-rinse, hot wash, hot final rinse) – ~1,600 l hot water/day
  • Average daily electricity consumption 450 kWh (large user)
  • Electricity charges are 22.6cents/kWh and 10.1 cents/kWh (ex GST and after discounts have been applied) for peak and off-peak respectively. Annual spend on electricity is $22,206.71 (ex GST).

How big should the PV system be? 

The optimum size depends on several things such as; the load profile, how much of your consumption you aim to off-set, the available roof space (or ground space), and how much you’re willing to invest.

For this case, let’s choose a 50 kW quality brand PV system. The going price for this roof-mounted system on a tilt frame is $59,545 (ex. GST) net of RECs.  And, from July 1, 2017 the feed-in tariff rate increased to 11.3 cents/kWh.

Whilst the calculations for the economic analysis might be straightforward, the real challenge is making realistic assumptions about power usage.

Unfortunately, many solar systems salespeople don’t have a good appreciation of dairying and I have seen too many instances where the intended outcomes are never realised because of poor or incorrect assumptions.

For the example dairy, the maximum proportion of PV generated electricity that can be consumed directly is 48% because the bulk of the electricity generated is typically between 11:00 am and 3:00 pm, when very little or no equipment is operating.  To increase the proportion of direct consumption would require shifting tasks to this timeslot – option 3, to be discussed in another post.

The PV system

PV system Size 50 kW PV capital cost $59,545
Average annual electricity generation  72,560 kWh Simple payback period 5.8 years

GabrielSolar1Table

Even with 48% of the generated electricity being directly consumed – and 52% being exported – the annual savings are substantial, $10,613 in year 1. The simple payback period for this investment is 5.8 years. Higher tariffs or future price increases would make the payback shorter.

The “take-home” lesson here is that the more you can consume directly the better the financials stack up.

If the PV system was bigger, say 80 kW, you might be able to capture a little more for direct use during the winter months but you will be simply exporting more to the grid. It is still financially attractive but requires more investment (~$95,300) and payback time is extended by about six months.

Financing solar
The financial indicators above assume farmers have the money to fund this investment stashed under the pillow (we all wish it was).

Fortunately, over the last three years or so the financing market has become far more amenable to funding energy related equipment. The number of institutions that offer products targeting this space seems to grow every month.

The Sustainable Melbourne Fund (http://sustainablemelbournefund.com.au/), for example, has broadened its focus to regional areas and is very interested in getting involved in the agricultural sector. They were really impressed by the environmental credentials of the Green Cleaning System I designed a few years back.

A cashflow-neutral investment
Financing an investment such as this can be very attractive as the savings in the electricity bills can be used to service the repayments. By negotiating a low (interest) rate and reasonable term length (5-7 years), these types of projects can become cashflow positive from the very first bill.

If we were to finance the above 45 kW PV system over a 7-year term, the fixed monthly repayments would be $846 equating to $10,152 per year. If we manage to achieve 40% or more direct consumption of the PV generated electricity, then this project would be “cashflow neutral” or even slightly positive from the outset. After seven years, the saving can be banked.

So, “Should I go solar?” is worth thoughtful consideration. The option presented here is the least financially attractive of the three options but still has merit. Ensure that any assumptions made are directly relevant to your situation. Do your homework and don’t hesitate to seek advice.

Thank you, Gabriel, and Milk Maid Marian looks forward to the next installment of solar smarts.

A very personal rural mental health post

Andrew and Marian
“Today, there are only three of us,” my father said, rather matter of factly. It seemed an odd statement as we sat outside my share house in my parents’ Commodore. After all, I was in university now and I could count to three.

“Where’s Andrew?” I asked innocently.

I can’t remember how my parents answered that question but the reason for their surprise trip to Melbourne was to tell me that my brother had drowned at Walkerville the afternoon before, 25 years ago.

Walkerville is a stunning place. Steep cliffs studded with historical sites curtain pristine sand in a sheltered cove that arcs towards Wilson’s Prom.

The sea has cracked open faults in the limestone to create caves walkers explore from the beach. Just as my parents and brother set out to do.

Andrew had not long been discharged from a clinic after months of treatment for obsessive compulsive disorder (OCD). The disorder is sent up in rom-com movies every few years but, believe me, there’s nothing funny about living with it.

I’d often visited Andrew during his stay in the clinic. Walking to the local cafes, he’d feel compelled to check whether his wallet was still in his back pocket every few minutes. That didn’t bother me but it was devastating to Andrew.

“I know it’s ridiculous, I know in my head that it’s probably still there but I just can’t make the feeling go away and it’s horrible. It’s not me,” he said.

Another day, Andrew explained that while some of the therapy was helping, he’d come to the gutting realisation that many of the people he’d met at the clinic had been back time and time again.

“I thought the point of being at the clinic was to cure the OCD but maybe I’ll always be like this,” Andrew said very softly.

OCD was the one blight on Andrew’s otherwise rosy horizon. Dux of maths at the grammar school, then a science and engineering student at Monash Uni, Andrew was clever, sporty and social. The total package, the apple of my mother’s eye.

The day he was discharged from the clinic, Andrew insisted on driving the pair of us back to the farm from Richmond. It was a hairy three hours I will never forget. At the intersection of Glenferrie and Dandenong Roads, we happened to be first at the lights. When they changed from red to green, Andrew asked me to remind him what the green meant.

The clinic hadn’t warned me about any odd behaviour, medicinal side effects or that driving might be a problem.

Andrew spent the next two weeks on the farm with Mum and Dad. The three of them decided to join the local walking club for a trip to Walkerville. Mum had dodgy knees, so was slow getting down the steep cliffs and Andrew tagged along with her.

Walking along the beach, Andrew asked Mum if she could see red spots in the sand. She tells me that, realising they weren’t real, Andrew was shattered at the prospect of hallucinations.

Out of breath once they reached the first cave, Andrew sat on a boulder to rest while the group ventured in. When they emerged, the walkers found him floating face down. Despite their desperate efforts, he could not be revived.

The coroner theorised that the drug used to control Andrew’s symptoms had made him susceptible to seizures at times of stress and exertion. My parents had no idea a bushwalk could kill their son.

Later, at a debriefing session, the clinic defended its silence on the side effects of his medication on the grounds of confidentiality. Andrew was 19, after all.

I wasn’t there to hold Andrew’s hand as he sat on top of that boulder and the nightmares of guilt came for maybe a year, nonetheless.

Bending down, I’d be spinning a whirlpool on my back, my brother being sucked slowly but inevitably down. If I allowed the whirlpool to collapse, he would die, if I didn’t free him from it, he would die. Every night I woke in a sweat.

I completed the last semester of my psychology degree in a daze and changed the course of my career to the far less emotionally taxing field of marketing.

Twenty-five years later, the grief has lost its edge but little of its power. A visit to Walkerville last year for a friend’s birthday party seemed to take place in slow motion and left me feeling traumatised for days.

My father is gone, my mother is caught in dementia’s unrelenting grip. She tells the story of that day again and again. The red spots, her leaving him on the boulder, the discovery, the refusal of a boatman to help, the desperate search for someone with a landline at home in a holiday town. I can’t tell you how that hurts.

I still feel bewildered. If the nearest help for Andrew was closer than the three-hour drive from home, if there was the right post-discharge support for him and my parents locally, would that have saved his life?

I’d hoped that today’s rural mental health system treats our most vulnerable brothers, sisters, sons and daughters better but it appears there is a long, long way to go.

A paper prepared just last year called Mental Health Care in Rural Australia shows many rural Australians are still “…falling through service cracks…”.

It takes well-resourced and proactive parents to access professional help, assuming they do recognise the early signs my family missed.

Andrew would be 45 this year. I like to imagine that if things had been different – with the right help – he’d have harnessed that remarkable mind of his to become a brilliant scientist and save the lives of others.

Kids Helpline: 1800 55 1800 (24/7 crisis support)
www.kidshelpline.com.au

headspace: 1800 650 890
www.headspace.org.au (direct clinical services)

Code of conduct vs contracts

CoC

The newly released Code of Practice has been promoted as industry working together to restore trust and confidence. It’s a step in the right direction but, as it stands, the Code brings little comfort for three reasons:

  1. Apart from a few tweaks around the edges, it preserves the status quo;
  2. Other than being labelled “very naughty”, there are no penalties for flaunting it; and
  3. It doesn’t apply anyway when processors demand new suppliers sign an individual contract. Easy!

Welcome improvements achieved by the code
Don’t get me wrong: the tweaks achieved by the code are welcome and important, especially these:

  • “Any downward changes to such adjustments (or adjustment calculations) cannot be made unless the dairy farmer has been given 30 days’ written notice…”
    In the heat of May 2016, Fonterra initially gave us minus 5 days’ notice. Thirty days would have allowed farmers to make better decisions under far less pressure.
  • “A farmer is entitled to all accrued loyalty and other payments where they have supplied to the end of a contract term, irrespective of whether they remain a supplier post a contract expiry.”
    This will make a difference because, while it effectively continues to reinforce at least a one-year term, farmers are free to switch processors afterwards without missing out on payments that could otherwise take months to arrive.
  • “Where a farmer has a contract with a processor and wishes to expand their production and a processor does not want to purchase the additional milk under the same contractual terms and conditions, the contract between the farmer and processor must allow the dairy farmer to supply the additional milk to other processors.
    This clause will apply if the primary processor is prepared to take milk in addition to the contracted volume at a lower price.”
    This aims to prevent the dreadful Tier 1 vs Tier 2 milk situation seen in fresh milk states like NSW for those on standard form contracts.

Sadly, none of this will stop a savage price drop again and farmers are still pretty much forced to sell all their milk to a single customer for a full year without any guarantee of the price they will be paid.

It’s sad but true that, even with the improvements made by the Code, dairy farmers are at a horrendously unfair disadvantage to the processors who buy our milk.

A Code with no bite
The first thing I should say is that it is clearly not within the power of dairy farmer representatives to mandate this Code. Only our politicians can make laws.

It does mean, though, the that Code is something of a toothless, arthritic tabby at best. In fact, the worst that can happen to any processor who breaches the code is that suppliers can leave (if they can find new homes for their milk) and the processor is labelled a very naughty boy.

Frankly, the shameless behaviour on display over the past 18 months shows it’s pretty clear plenty of processors don’t give a damn what we think of them.

In a piece published by the Stock & Land, UDV President Adam Jenkins said:

“But it’s up to us, as dairy farmers, to take ownership and hold the processors to honouring all the provisions.”

Sounds great. Unfortunately, we just don’t have the power to do that. After all, that’s why a Code was developed in the first place!

Code vs contracts
The Code only applies to “standard form contracts” (those which are the same or similar for all suppliers) rather than the increasingly-common individual contracts.

Burra Foods CEO Grant Crothers spells it out neatly for suppliers in his June 27 blog post:

Mr Crothers is on record now saying that his contracts comply with the Code. I’m not a lawyer, so I can’t comment on whether the clause below contravenes the Code’s insistence that “…no changes should ever be made retrospectively…” but can well understand why some dairy farmers are concerned it does.

Burra42.jpg

At any rate, simply moving from standard form to individual contracts provides an easy work around for processors not keen on meeting the terms of the Code.

The Code provides a starting point
While the Code is not the solution to all our woes, at least we now have a list of basic expectations regarding the way processors treat farmers. But I couldn’t put it better than Adam Jenkins himself, when he wrote: “…while the code is in itself a great achievement of the dairy industry, the real challenge will be ensuring that it is enforced”.

The Code is a foundation for other measures that will restore confidence to invest. Let’s hope there’s another few rounds in the locker to come.

 

What’s going on with our weather: rotten Ridgy and silly Sam

FrostLoRes.jpg

Aaaa haah haah haaaaahhhhhhh! We’re only a handful of kilometres from the sea but, even here, dawn temperatures of -4 degrees Celsius are enough to test a Milk Maid’s mettle.

This morning’s frost was even heavier than yesterday. It’s a cold, dry winter.

FrozenRainGuage

But why is it so dry and cold even though the El Nino watch is now officially over? Well, as the Bureau explained in its Climate Influences report associated with the three-month outlook, there are two main problems aside from climate change:

“…the sub-tropical ridge over Australia shifted southwards, and the Southern Annular Mode—or SAM—forecast to be positive at least for much of July. When SAM is positive, the global belt of high pressure in the southern hemisphere mid-latitudes shifts southwards, pushing cold fronts and moisture to the south of Australia.”
– Bureau of Meteorology

Too technical? Whether you’re an old hand or new to all the meteorological jargon, the Climate Dogs videos explain it all beautifully in less than two minutes. Give them a go.

This wretched season is all down to rotten Ridgy and silly Sam playing up. With Sam not driving enough cold fronts up here from Antarctica and Ridgy doing his best to block them, we’re in a spot of bother with not enough moisture for clouds to make rain or blanket us at night. Now, if only we could take them to dog obedience class!

Playing games with our lives

GAMP

GAMP: Before MG in Gippsland

With just a couple of exceptions, the processors seem to have learned just one thing from the last year of chaos: loyalty is now a luxury item.

The jumble of opening prices, incentives, secret deals and long-term contracts with short-term prices shows that, by and large, we are in an era where it’s every man, woman and child for themselves.

It wasn’t always this way. Until recently, you could not buy loyalty.

Even though there were more lucrative options, most Australian dairy farmers chose to supply the last big co-op, Murray Goulburn. For generation after generation, we knew in our hearts that only a strong co-op, which put farmers first, should set the pace for the farmgate milk price.

Since the April/May debacle when farm gate milk prices crashed to disastrous levels, farmer loyalty has become gossamer thin. The main theme from Dairy Australia’s farmer survey reported in its June Situation & Outlook was that “Trust in processors has taken a knock”. Err, yes, just a little.

“In the past 12 months, 11% of respondents changed the processor they supply and a further 17% would like to change supplier – 9% are considering it and 8% would like to change but are unable to.”
“Farms with herds greater than 700 cows were most likely to have changed processor or to be considering a change.
“In general however, most farmers tend to be loyal to their processors historically and 61% have remained with one processor for the past 10 years.
“Milk price is predictably the primary reason for changing or considering changing processor, however 21% also expressed concerns with processor management and the treatment of farmers, 12% were concerned about the ‘clawback’ and 8% lack trust in their company and feel they have not been honest.”
– p. 5, Dairy Australia Situation & Outlook, June 2017

DA’s survey was conducted in February and March – well before MG opened first, very early. Everyone was watching. For years now, MG has set the benchmark milk price, pushing it as high as it could go in the spirit of a farmer-owned co-op.

This time was different.

MG’s price of $4.70 per kg of milk solids (about 36 cents per litre) was simply far, far too low. MG’s competitors needed milk and were willing to pay not just a little more but a lot more and farmers have been scrambling for the life boats in a bid to survive a third tough year in a row.

Meanwhile, other processors have been offering “loyalty” bonuses or locking farmers into long-term supply contracts without the long-term prices to match. It all flies in the face of the honour, transparency and simplicity the processors are apparently set to pledge under the Code of Conduct.

Today, MG has performed a minor miracle, lifting its opening price from the miserable $4.70 to $5.20 before the season has even begun. This 11 per cent increase puts the MG price close to breakeven for many of its suppliers.

It’s fantastic news.

Farming families across the country will breathe a little easier tonight and, for that, I am very grateful.

But, like the “forgiveness” of the MSSP, like Fonterra’s 40 cent payment, this about-face leaves me wondering why it was necessary to inflict so much pain and hardship on farmers in the first place.

Bitterness is never a becoming attribute but, with processors pulling one stunt after another seemingly without regard for the farmers stretched to their financial, physical and mental limits, it’s getting harder and harder to maintain the faith.

Opening prices so far

This post will be updated as announcements are made and can be confirmed. Wherever possible, there is a link to the processors’ full announcements if you click on their names below:
MG $4.70, revised to $5.20
Bega $5.50
WCB $5.50
Burra $5.45-$5.65 if farmers lock into three years of unknown pricing or $5.05 – 5.25 without commitment.
Fonterra $5.30 plus bonus 40 cents
Parmalat $5.70

NBtweet

Mervis mans up and makes MG a leader again

Apology

The new CEO of Murray Goulburn, Ari Mervis, has done something small but truly fabulous: he’s apologised for stuffing up.

On Tuesday, Mr Mervis told listeners to ABC Radio’s Country Hour program that MG’s opening price of $4.70 was “…well above the cost of production” in an interview with Warwick Long. I wasn’t sure if he was out of touch or trying to spin a pig’s ear into a silk purse. Either way, it wasn’t a good look for the head of Australia’s largest milk processor.

In this apology totally devoid of spin, Mr Mervis cuts to the chase and recognises the difficulty facing its farmer suppliers.

While MG’s opening will not make it a price leader, Mr Mervis’ letter to suppliers signals that, after a couple of years in the wilderness, the co-op is back on the path of becoming a values leader in Australian dairy.

Spreadsheets for brekky, lunch and dinner again

ForkLoRes

The first opening milk price announcement for the new season has been made. And it’s spreadsheet time again for farmers and processors alike.

Why? Because Murray Goulburn has come in at $4.70 kgMS – the equivalent of about 36 cents per litre.

Farmers milked dry will lead to empty stainless
Very few Victorian dairy farmers can produce milk at that price. The most recent industry figures – during the 15/16 drought – put the average cost of production at $5.72 (see below). The 14/15 Dairy Farm Monitor report showed $5.36 and 13/14’s figure was $5.42.

So, yes, the seasons and the cost of inputs like grain affect the cost of production but this opening milk price is simply not enough and my heart goes out to every MG farmer wondering how to make ends meet.

Farmers will need to cut costs to the bone (again) to survive. How? Well, like the year we’ve just had, it’ll be every little thing possible, right down to insurance but there is one obvious variable cost to consider: stockfeed.

As you can see from the table above, “Purchased feed and agistment” amounted to a whopping 59 per cent of variable costs. Granted, prices were high that year but feed costs always are the biggest, fastest and first lever farmers pull when forced to bring the money train to an emergency stop.

At the same time, the value of cows sent to market is 29 per cent up on the five-year average.

Any farmer working on her spreadsheets will find a very powerful case to sell cows and buy as little grain and hay as she dares. In other words, make less milk.

Empty stainless is not profitable for processors
Just three years ago, the media was dubbing milk “white gold“. China’s seemingly unquenchable thirst for our milk drew breathless news reports and excited investors hot off the back of the mining boom.

Even the well established processors spent millions on stainless steel and now they have to fill it.

For example, Fonterra increased the capacity of its Stanhope cheese factory in a $120 million rebuild and will need a lot more milk from Northern Victoria, which has suffered a massive 18.4% fall in production year to date.

While the $4.70 opening price will have milk recruiters’ phones ringing hot, Fonterra and its rivals cannot assume that skimming milk from an ailing MG at a small premium will suffice. They will need to offer a sustainable milk price to assure supply over the lifetime of their investments.

Because, unlike gleaming multi-million-dollar processing machinery, cows and the farming families who tend them cannot be simply switched off and back on again.

If the co-op cannot manage a viable milk price, competition should
Traditionally, Murray Goulburn Co-op has been the pacemaker. It set the benchmark price that others had to match or better.

Now that the co-op is struggling to keep up with the pace, will the other processors take the opportunity to milk farmers dry or will competition and the need to fill expensive stainless save the day?

It’s a nervous wait.

 

This is why

Dam

I just love being outside. Fixing fences, moving cows, even slushing about in mud up to my knees in search of a broken water pipe is okay on a sunny winter’s day.

CowCalf

In fact, winter really is the new Spring here. As the traditionally miserable season grows warmer and drier, the cows have begun calving earlier – two months ahead of the mid-July calving date of my childhood. Right in the thick of it now, we’re welcoming at least five newborns a day.

NewPasture

The land, too, is undergoing renewal, with new pastures cloaking the paddocks just about ready to graze for the very first time.

Dairy farming may not be the lifestyle it was twenty years ago but this is hard to beat.