9 50:50 Sharemilkers: Equity and Capital Financial Analysis
9.1 Introduction
This section considers the equity and capital position of dairy farms, with additional information about trends over time in these positions.
Operating return on dairy assets was at 12.4 percent for sharemilkers, while total return on assets was measured at 18 percent. The level of debt to assets increased to 61.6 percent at close, while term liabilities of $3.78 per kilogram milksolids was similar to the previous season.
9.2 Dairy Assets
Total dairy assets increased in value by $10,474 during the 2018-19 season, closing at $1.0 million per farm. Livestock accounted for 75 percent of total closing dairy assets, following a small decrease in value throughout the season.
9.3 Liabilities and Debt Servicing
The flow of funds (Table 9.1) shows the components of the change in working capital, including the source and application of cash funds. Funds for 2018-19 were mostly from farm operations. Term debt increased ($33,643) on loans by the close of the season. Of the funds applied, 27% was spent on drawings, 46% was spent on capital transactions and 15% was spent on interest payments. Tax payments required 12 percent of funds at $30,109 per herd.
| 2017-18 | 2018-19 | |
|---|---|---|
| WORKING CAPITAL: | ||
| Change in Current Assets | 2,932 | -24,375 |
| - Change in Current Liabilities | 15,668 | -10,322 |
| Change in Working Capital | -12,736 | -14,053 |
| SOURCE OF FUNDS: | ||
| Cash Operating Surplus | 169,323 | 213,273 |
| + non-dairy cash income | 1,996 | 2,659 |
| + net off-farm income | 4,071 | 5,230 |
| + introduced funds | 14,806 | -19,006 |
| + income equalisation | 0 | 470 |
| + increase in term debt | 20,730 | 33,643 |
| = Total source of funds | 169,466 | 222,216 |
| APPLICATION OF FUNDS: | ||
| rent | 2,320 | 827 |
| + interest | 31,626 | 36,976 |
| + tax | 24,199 | 30,109 |
| + capital transactions | 49,540 | 113,811 |
| + drawings | 74,517 | 67,169 |
| = Total application of funds | 182,202 | 248,891 |
| Source less Application of funds | -12,736 | -26,675 |
The average 50:50 sharemilkers cash operating surplus was $213,273, which was well above the previous season’s $169,323. This level of cash operating surplus for 2018-19 translates to around $1.15 per kilogram milksolids, the same as last season’s level. In 2018-19, the average level of discretionary cash of $153,251 per farm was well above last season’s at $113,174 (Table 13.5). It continued the strong position also observed in 2016-17, in strong contrast to the instance in 2015-16 where discretionary cash was negative (-$31,172). Typically, these funds are required to reduce debt, sustain drawings and to fund capital expenditure. For the 2018-19 season, term liabilities declined from $3.78 relative to the 2017-18 season of $3.81. Interest and rent expenditure at 20 cents per kilogram milksolids was 3 cents less than the previous year. Interest and rent per dollar of gross farm revenue decreased from 6.1% to 5.6% (Table 9.2).
| 2009-10 | 2010-11 | 2011-12 | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | |
|---|---|---|---|---|---|---|---|---|---|---|
| DEBT SERVICING: | ||||||||||
| Interest & rent $/kg MS | 0.38 | 0.35 | 0.26 | 0.27 | 0.27 | 0.24 | 0.27 | 0.25 | 0.23 | 0.20 |
| Interest & rent % GFR | 10.9% | 8.2% | 6.5% | 7.0% | 6.2% | 7.1% | 11.5% | 7.3% | 6.1% | 5.6% |
| Term liabilities $/kg MS | 4.51 | 3.98 | 3.09 | 3.64 | 3.71 | 3.36 | 4.07 | 4.05 | 3.81 | 3.78 |
9.4 Equity
As of 1 June 2019, sharemilkers had an average equity of $496,276 in their dairy farm business. Total liabilities increased over the 2018-19 season.
9.5 Returns
The operating return on dairy assets (excluding capital appreciation) is discussed under profitability (see Section 7.3). Total return on assets (profit including capital change generated by the assets employed) in 2018-19 was 18 percent, as shown in Figure 9.1. Net returns from dairy activity yielded $116,649 across the 2018-19 season, combined with an average change in capital value of $82,092 per herd. Sharemilker returns are more volatile than those earned by Owner-operators due to livestock being their most significant asset class and livestock values fluctuating with greater magnitude than land prices.
Figure 9.1: Owner Operator Total Return on Assets
Total returns on sharemilkers equity averaged an increase of 36.7% in 2018-19. This was well above last seasons -2.9% return.