Highly profitable dairy farmers learned in the University of Life how to be financially savvy and understand the figures, said agricultural consultant and land agent Mike Brady, when he outlined seven key characteristics of high profitability in milk production, at the recent Irish Grassland Association Annual Dairy Conference, writes Eoin McCarthy
Being good with the figures, and financially savvy is one of the seven.
But some have gained that characteristic only after nearly going broke at the end of the 1970s, or in the early 1980s.
These individuals subsequently became successful because the University of Life kicked in, said Mike Brady.
They understood how finance worked and how the banks worked and how they could borrow money and what made sense to borrow and what didn’t make sense to borrow. “That was the education that they got.”
“High-profit dairy farmers have a long term picture in their head of where they are going, and they are not influenced by fashion, they understand the interplay between risk and bank debt.”
Firstly, Mike defined what a high-profit dairy farmer is.
He based his definition of a high-profit dairy farmer around the Teagasc target profit of €2,500 a hectare (at 29 cent per litre), with a stocking rate of two and a half cows to the hectare.
Profitable dairy farmers are technically efficient, he told the conference,
To make €2,500 a hectare, they have to be technically efficient in growing grass and breeding. It’s the latter that in Mike Brady’s opinion which separates really high-profit farmers from average ones.
“High-profit dairy farmers know the cow that is suitable for their system, they are familiar with that cow. They know the metrics of that cow.
“They can choose the bulls for that cow, not necessarily the highest EBI cow in the world, but they know the cow that drives the profit in their system.
Brady explained that the dairy farmers who are successful and make high profits are very focused on and know their system of milk production.
“For high-profit dairy farmers, it actually does not matter what system you are in, once you do it well and you are focused on it and you stick to it, there is a bigger difference of profitability within systems than between systems.”
High-profit dairy farmers have to be good with people, and they have to be able to keep their staff and their family happy
They also have to deal with their peers in their discussion group, their neighbours, and they have to be able to deal with their professionals.
“High-profit dairy farmers have a good, solid team around them, that has probably been with them for a long period of time.”
Mike indicated that team might include the discussion group, the advisor or consultant, an accountant, a good tax consultant that may be independent of the accountant, a banker, a solicitor.
“And you need an outsider you can bounce ideas off.”
The top dairy earners also have good values — they have a good balance between work, business goals and personal goals.
Not surprisingly, the amount of land owned, the more profitable the dairy farmer is likely to be.
A dairy farmer who owns 40 hectares and meets the Teagasc profit target of €2,500 a hectare makes €100,000 a year.
The farmer who owns 200 hectares can make half a million, and the farmer who owns 400 hectares can make a million euros, even if all have the same milk performance per hectare.