9 50:50 Sharemilkers: Equity and Capital Financial Analysis
9.1 Introduction
This section considers dairy farms’ equity and capital position, with additional information about trends over time in these positions.
The average dairy operating profit per hectare of 50:50 sharemilkers in 2022-23 decreased by $660, to $1,104. Cash operating surplus per farm in 2022-23 ($250,934) was 27 percent lower than in the previous year. The average interest paid by 50:50 sharemilkers in 2022-23 ($29,384) was higher than in the previous three seasons but rent and tax payments were lower (Table 13.5). After the addition of introduced funds and income equalisation, the discretionary cash available 2021-22 was $168,587, 34 percent lower than in the previous season ($258,608). The cash surplus per kilogram of milksolids in 2022-23 ($0.03) was significantly lower than in the previous three seasons (between $0.23 and $0.28). Sharemilkers’ equity grew by $62,197 in 2022-23, to $898,310, driven by growth in equity from the farming operation ($93,657). Total liabilities as a percentage of total assets (the debt to asset ratio) marginally increased to 36.6 percent at the end of the season. Closing term liabilities per kg of milksolids decreased from $2.67 (2021-22 season) to $2.29 (2022-23).
9.2 Dairy Assets
Total dairy assets increased by $10,930 during the 2022-23 season, closing at $1,199,475 per farm (Table 13.6). Livestock constitutes the highest proportion of sharemilkers’ dairy assets, comprising 68 percent of total dairy assets at closing.
9.3 Liabilities and Debt Servicing
Interest is the cash cost of borrowing funds, while rent is the cost of borrowing assets. The average interest & rent per kilogram of milksolids in 2022-23 was $0.16, higher than in the previous two seasons, but still lower than the 10-year average of $0.19 (Table 13.5). The average term debt decreased by ($48,487) during the 2022-23, closing at $416,013 per farm (Table 13.6).
The flow of funds (Table 9.1) shows the components of the change in working capital, including the source and application of cash funds. The total source of funds for 2022-23 ($385,080) were mostly from farm operations (cash operating surplus and change in working capital). Of the funds applied, 39 percent was spent on drawings (9 percentage points higher than the previous season) and 28 percent was used for tax payments ($66,548). Net capital transactions ($48,159) represented 21 percent of total funds applied.
| Variable | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 |
|---|---|---|---|---|---|---|---|---|---|---|
| WORKING CAPITAL: | ||||||||||
| Change in current assets | 32,816 | -23,771 | -16,221 | 22,455 | 2,932 | -24,375 | 112,605 | 161,046 | 195,556 | 153,504 |
| Less change in current liabilities | 13,755 | -1,920 | 23,954 | -9,244 | 15,668 | -10,322 | -10,193 | -16,512 | 21,208 | -3,071 |
| Change in working capital | 19,061 | -21,851 | -40,175 | 31,699 | -12,736 | -14,053 | 122,798 | 177,558 | 174,349 | 156,575 |
| WORKING CAPITAL: | ||||||||||
| Cash operating surplus | 201,958 | 137,419 | 11,433 | 167,540 | 169,323 | 213,273 | 230,372 | 298,298 | 344,252 | 250,934 |
| Plus change in working capital | 19,061 | -21,851 | -40,175 | 31,699 | -12,736 | -14,053 | 122,798 | 177,558 | 174,349 | 156,575 |
| Plus net non-dairy cash income | 2,036 | 2,511 | 2,243 | 1,798 | 1,996 | 2,659 | -1,380 | 5,060 | 906 | 1,611 |
| Plus net off-farm income | 3,989 | 3,817 | 4,546 | 2,281 | 4,071 | 5,230 | 10,975 | 8,513 | 12,921 | 12,018 |
| Plus introduced funds | 13,155 | 24,197 | 26,601 | 12,583 | 14,806 | -19,006 | -10,255 | 27,709 | -9,120 | 13,246 |
| Plus income equalisation | -2,621 | -6,091 | 5,707 | 1,412 | 0 | 470 | 0 | 596 | 0 | -817 |
| Plus increase in term debt | 973 | 50,721 | 37,011 | -17,644 | -20,730 | 33,643 | -8,192 | -20,070 | -60,025 | -48,487 |
| Total source of funds | 238,551 | 190,723 | 47,366 | 199,669 | 156,730 | 222,216 | 344,318 | 497,664 | 463,283 | 385,080 |
| APPLICATION OF FUNDS: | ||||||||||
| Rent (excl support block) | 3,401 | 5,154 | 1,407 | 1,047 | 2,320 | 827 | 1,220 | 438 | 214 | 43 |
| Plus interest | 34,599 | 31,805 | 37,949 | 34,629 | 31,626 | 36,976 | 27,516 | 21,389 | 19,725 | 29,384 |
| Plus tax | 29,237 | 25,101 | 5,492 | 6,220 | 24,199 | 30,109 | 39,336 | 60,010 | 79,532 | 66,548 |
| Plus net capital transactions | 60,379 | 89,030 | 26,407 | 36,654 | 49,540 | 113,811 | 57,631 | 119,380 | 84,090 | 48,159 |
| Plus drawings | 72,813 | 83,335 | 56,461 | 57,721 | 74,517 | 67,169 | 65,458 | 76,247 | 79,739 | 90,535 |
| Total application of funds | 200,429 | 234,425 | 127,716 | 136,271 | 182,202 | 248,891 | 191,161 | 277,464 | 263,300 | 234,670 |
| Total source of funds less application of funds | 38,122 | -43,702 | -80,350 | 63,398 | -25,472 | -26,675 | 153,157 | 220,200 | 199,984 | 150,411 |
The 2022-23 average 50:50 sharemilkers’ cash operating surplus was $250,934, lower than in the previous two seasons (Table 9.1). This translates to $1.38 per kilogram of milksolids (Table 13.5). The 2022-23 average level of discretionary cash was $168,587 per farm, $90,021 lower than in the previous season. Despite the reduction in the 2022-23, the average discretionary cash for sharemilkers has maintained a strong position since the 2016-17 season (Table 13.5). The average term liabilities per kilogram of milksolids declined to $2.29 in the 2022-23 season, the lowest of the last 10 seasons (Table 9.2).
| Variable | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 |
|---|---|---|---|---|---|---|---|---|---|---|
| Interest & rent $/kg MS | 0.27 | 0.24 | 0.27 | 0.25 | 0.23 | 0.20 | 0.16 | 0.12 | 0.12 | 0.16 |
| Interest & rent % GFR | 6.2 | 7.1 | 11.5 | 7.3 | 6.1 | 5.6 | 4.1 | 2.9 | 2.3 | 3.5 |
| Term liabilities $/kg MS | 3.71 | 3.36 | 4.07 | 4.05 | 3.81 | 3.78 | 3.19 | 2.91 | 2.67 | 2.29 |
The debt to asset ratio increased marginally from 36.5 percent at the close of 2021-22 to 36.6 percent in 2022-23. Debt to asset values have significantly fallen from a period of high debt to asset ratios from 2015-16 to 2018-19, corresponding with stronger milk payouts for sharemilkers.
Graph 9.1 shows the distribution of debt to asset ratio for 50:50 sharemilkers in the 2022-23 season. About 63 percent of farms had a debt to asset ratio below 40 percent. Less than two percent of farms had a debt to asset ratio over 70 percent.
9.4 Returns
The return on dairy assets is discussed under farm profitability (Section 8.4). The total return on assets considers operating profit from both dairy and non-dairy farming operations, plus the change in the value of capital assets. The total return on assets in 2022-23 was 6.8 percent (Table 13.7).
Net returns from dairy activity yielded $162,696 per farm in the 2022-23 season, combined with an average change in capital value of -$69,170 per farm. 50:50 Sharemilker returns are more volatile than those earned by owner-operators due to livestock being their largest asset class and livestock values fluctuating with greater magnitude than land prices.
During the last 10 years (2012-13 to 2021-22) the total return on assets has ranged between -20.2 and 25.1 percent, as a result of changes in capital and returns from farming operations (Figure 9.3).
The percentage return on equity is the return on the owner’s funds, including capital changes after interest is paid (Table 13.7). The return on equity will be higher than the total return on assets when the latter is greater than the cost of debt and vice versa. In 2022-23 the total return on equity was 9.4 percent (Table 13.7), significantly lower than in the previous four seasons, but higher than the 2022-23 total return on assets (6.8 percent). The 2022-23 season was the fifth season in a row with a positive return on equity.