Making the sums add up

Due diligence before signing a contract milking agreement has made all the difference for Clay and Joy Paton. Words and pics by Anne Hardie.

When Clay and Joy Paton signed a contract milking agreement on a Golden Bay farm, they had carried out due diligence to make sure the figures stacked up financially.

They decided there was no point moving to contract milking unless it returned a profit of $30,000 or more above a manager’s salary, depending on the property. On a smaller property with a salary of $60,000, the contract needed to bring in $90,000, while on a larger farm where a manager may be paid $110,000, they would need a contract that resulted in $150,000 to make it worthwhile taking on the extra responsibilities.

Like so many in the dairy industry, Clay started out on a different career path before finding his feet on a dairy farm. A flair for design at school led him to university to study landscape design but he soon realised he would be sitting at a desk too much for his liking. Looking for a new career path, he escaped with Joy to a three-month contract on a large dairy support block in Central Otago that wintered 800 cows, 800 rising two-year-old heifers and 400 yearlings. He loved it. Joy had grown up with sharemilking parents and the couple adjusted their sights and focused on a future in dairying.

Clay went on to become the country’s Dairy Trainee of the Year winner in 2017 while working on a farm near Nelson owned by Brent and Michelle Riley. The next season they moved their young family – which has grown to three young children – to the Rileys’ Collingwood farm for the 2017-18 season and their plan was to prove themselves in a management role. Everyone knew it was not an easy farm. Pakihi terraces had been developed by the Rileys back in the 80s and 90s from scrub-covered, waterlogged land into dairy pasture. Over the years it had been run by contract milkers and when the Patons took over there was still a lot of work to do to improve pasture and lift production.

Out on the tractor.

The farm was originally milking 540 cows on 180 hectares and producing 920kg milksolids (MS) per hectare. Since then they have lifted production to 1300kg MS/ha mainly through a mix of land development using maize crops, herd improvement and improved water system, while continuing to put 0.7 tonnes of meal per cow into the system through the season. Production has continued to improve and this season they expect to produce 350,000kg MS from an increased land area of 265ha.

The Rileys’ home farm neighbours the dairy unit and that has been amalgamated with the farm to bring it under Clay and Joy’s management.

The alluvial flats on the home farm grow 25% more pasture than the higher pakihi terraces and the expanded milking platform now milks 820 crossbred cows. Three seasons ago they negotiated a contract milking agreement with the Rileys that pays them $1.20/kg MS. In effect, they are paid for successful milk production, without the financial burden of investing in stock.

They also did their due diligence before signing up and say that is too often overlooked by potential contract milkers. They sought help from their DairyNZ consultant, a former ITO tutor, bank manager and accountant, plus numerous conversations with others who had gone through the contract milking process.

Know your budget, stick to your budget

“We had good people to talk to about how to shape the budget and the rate we would require to make it work,” Clay says. “A lot of people get caught up with the title and don’t do due diligence.

“There were no secrets and we could do an accurate budget,” he says. “It’s about doing an accurate budget and knowing your numbers and then sticking to that budget.”

Joy says they are lucky to have a good relationship with the farm owner and good communication which enabled them to negotiate a contract rate that worked for them.

“We did our budgets and worked backwards, then went to Brent and said this is what we require to make it work. We’re lucky because we have that relationship.”

Because they had already spent a couple of seasons on the Collingwood farm, they could accurately budget for their expenses as contract milkers, including wages, electricity, motor bikes, fuel and dairy consumables.

Wages is their highest cost by a mile, gobbling up 65c in every $1.20 of their contract – it was 80c in every $1.20 before the farms amalgamated and the business expanded to give it more economy of scale. That 80c covers three full-time staff and two calf rearers. Taking charge of staff at a time of an increasing minimum wage, in an area that struggles to attract staff and competition from other industries through Covid-19 times has been the biggest step from a management role.

Paying for staff has been an incentive to take on more of the work themselves and Clay typically works 4am through to 6pm from calving through to the end of mating, plus the night shift to check calving cows. The farm has up to 50 calves arriving a day at the peak of calving and Clay does the extra hours to ensure staff are on reasonable hours and to save money.

“We’ve thrived because of genuine work ethic to make it work. But it’s not easy and we work a lot of hours. Because our wage bill is our biggest bill, the incentive is there to do as much as you can yourself.

“It’s important to take care of yourself and family though. It is a dangerous incentive which provides opportunity and growth, but also pushes people out of the industry and can put people in bad situations.”

Hybrid contract lowers stock risk

They have a ‘hybrid’ contract because their budget also has to allow for grazing their own young stock. Until recently they had bought a total of 80 four-day-old calves from Brent to raise, that were then grazed off the farm until they calved as rising two-year-olds and joined the herd under a lease arrangement with Brent. As contract milkers they don’t need to own any cows and their accountant has advised them to be careful buying calves and paying grazing for them because it is a cost and a risk that hasn’t always proved worthwhile for others in similar situations.

Clay and Joy say they have been really fortunate that Brent agreed at the beginning that their stock could return

to the farm to join the milking herd, which removed a lot of risk from the equation for them. It is, again, the bonus of having employers who continually reward them for their hard work.

Purely on costs and risks, they have decided to hold off on buying more stock at this stage though.

“The costs and the losses mean we might as well buy them as in-calf heifers when we need them,” Clay says. “The rearing costs and the cost of losses is so close to buying them as in-calf heifers that you ask yourself, why bother?”

The 80 cows they lease to Brent are replaced if they don’t get in calf which means they have a guaranteed number of cows. While they have a budget to adhere to, Clay says the farm is still a ‘doer upper’ with ongoing work to improve it. There’s fencing and spraying expenses that are now their expenses, but that’s part of the trusting relationship that works both ways between farm owner and themselves as contract milkers.

“It goes both ways and we’re rewarded in the long run by those improvements.”

Keeping communication flowing

Communication with the farm owner is also vital for updating contract milkers on any changes to the farm system each year so they can update their budget. It might be a reduction in nitrogen due to the nitrogen cap or a reduction in purchased feed. For that reason, Clay and Joy say it’s important to sit down with the farm owner at the beginning of each season and get an update on all aspects of the operation. They consider a two-year agreement is ideal as that gives continuity to both parties.

Though they don’t pay for fertiliser, the pakihi soils need a ‘little and often’ approach that means applying a little every 30 days. That’s labour, diesel and wear and tear costs that are part of their contract milking expenses, but they trust their farm owner to invest in the farm which will in turn help their business.

They could have looked at sharemilking contracts, but Joy says contract milking can make good money and there are fewer risks.

“On a large scale, with a good contract milking job you’re away laughing because there’s no risks.”

A fixed contract rate means they miss out on the lift in milk payout, but they are guaranteed their income as long as they stick to their budget.

They have the added incentive of their contract to lift production and to achieve that, they continue to make improvements on the farm, largely through the maize programme. When they arrived at the farm five seasons ago, the worst paddocks were growing between five and eight tonnes per hectare and they have lifted that to about 14t/ha harvested.

Each year they have planted about 16ha in maize, with paddocks recontoured during the process to reduce waterlogging on the impervious soils. To date they have worked and replanted 50ha and this year they have 19.5ha of maize spread over the upper pakihi terraces and lower river flats. A larger portion of it is grown on the lower farm now because they can achieve higher yields from those paddocks and hence more kilograms per dollars spent. That will be harvested and fed out in autumn as the herd gets closer to drying off.

“We’re trying to get 4.5kg down their throats for the last three to four weeks of the season to try and dry them off at their calving weight,” Clay says.

Two thirds of the herd – the fattest cows – are wintered off the farm on another block down the west coast of Golden Bay. It is hilly, exposed land and the cows need the weight on their back going into winter because they can struggle to gain weight there. The lightest third is wintered on grass and hay on the milking platform which has the climate to continue to grow through winter at about 15kg DM/ha.

Improving reproduction results

Wintering the cows better has been one of the factors that has helped lift production to 1300kg MS/ha on the pakihi soils. It is also one of the factors that has helped bring the empty rate down from 14.5% to about 8% for the past two years. Between feeding the cows better, being proactive about animal health including metrichecking every two

weeks leading up to mating, checking every cow not cycling and improved bull management, the herd has achieved good in-calf results.

Plus, they have significantly increased days in milk, taking August production from 34kg MS/ha to 78kg MS/ha, while peak per cow production has risen from 1.9kg MS to 2.3kg MS.

The herd has AI for the first four to five weeks of mating, then four weeks with bulls, followed by two weeks with short-gestation dairy bulls. In the past, the farm has bred dairy-beef as non-replacement calves which can be farmed out on the West Coast property but easing beef prices and simplicity of management has prompted an emphasis on dairy replacements where there are better returns.

That new strategy translates to 370 heifers born onfarm, with 160 of those destined for the herd and the remainder farmed on to sell as in-calf heifers. This year they have stretched AI to six weeks to get more heifer replacements to sell down the track. Clay and Joy will continue to rear about 100 Friesian bulls as well as 30 breeding Jersey bulls, with the remainder of the bull calves sold as four-day-old calves or put on the bobby truck.

From calving, the heifers are run with vulnerable cows as one herd on the lower, more productive flats and milked through that shed, while the remainder of the herd graze over the pakihi terraces and slopes. The longest walk for the main herd is 1.7km, leading to the 50-bail rotary dairy. Cows are milked twice a day until Christmas and then go on to 16-hour milkings through to the last month before drying off when they are milked once a day to enable them to put on weight.

In Clay and Joy’s first season on the farm, the dairy was fitted with automatic cup removers and that has enabled milking to be a one-person job. That makes a huge difference for them now they are contract milkers paying for staff.

The meal feeding system has also been upgraded, including a larger silo, which are costs covered by Brent to improve the system that in turn frees up time for Clay. The farm buys in 560t of meal for the season which is fed out at 3kg/cow through spring, 1kg/cow during summer and then 2kg/cow in autumn.

The lane system was also upgraded last year and Brent bought a new silage wagon and tractor for the farm. It is investments like that from the farm owner that have helped build trust in their relationship for contract milking. Each side of the contract is prepared to do their part to not only increase production, but also look after the farm and make it easier to manage.