Better run farms get better prices

Data from the 2011 Profit Monitor for spring calving herds show that the Gross Output from the top 10% was 39 cent per litre while it was only 34 cent for the lowest 10% which is over €250 per cow difference at similar milk yields, but as the top group usually have higher yields per cow, the difference per cow is much greater. Two cent/l of this difference was accounted for by milk price, mainly based on quality.

The output per litre for the top 10% is almost 3 cent per litre more than the milk price while it was only the same as milk price for the low 10%. This is mainly due to the top group getting better prices for calves and lower replacement costs due to better disease control and management.

Average milk yield per cow in the 2011 Profit Monitor group was 5,065 litres while the top 10% had yields of 5,132 litres per cow and the cows in the low 10% had yields of 4,803 litres. These yield are higher than the average dairy farmer as can be seen in the National Farm Survey. However, they are much lower than some of our most profitable farmers who match cows to quota. There is a huge difference in costs between the top and low Profit Monitor groups particularly regarding feed and veterinary expenses. The Quota situation had a big influence on results for the past few years as many farmers dried off cows early or under fed them.

Total costs/L for the top 10% were 16 cent while it was 28 cent for the low 10%, resulting in a net margins/L of 23 cent and 6 cent respectively. These figures indicate the huge differences between the profitability of dairy farmers. The net profit margin (return for labour, land and capital) for the top per cent was 104 cent per/L and the low 10% averaged only 27 cent/L resulting in net margins per cow of €1,167 and €300 respectively. A close examination of individual circumstances usually helps to identify the reasons for these massive differences.

First Step

The first step in improving income from available quota is to have a Dairy Profit Monitor completed for your farm. With any reasonable set of accounts for 2011, a Profit Monitor can be filled out and analysed by Teagasc. This will be extremely useful for identifying areas where improvements can be made. It may not be easy to bring about these improvements but there are no other satisfactory alternatives. The improvements that farmers can make depend on where they are starting from.

Many of the differences are accounted for by higher prices for culls, involuntarily culling due to disease (mastitis, BVD, etc), better healthier calf crops and high protein milk. The disease status of herds is having a major effect on gross output values and costs and every farmer should have a good disease control programme in conjunction with their co-op and vet. Despite the cost of prevention, farmers cannot survive with disease problems.

Most co-ops are facilitating a disease identification programme from three milk samples per year. Every dairy farmer who is in doubt about the disease status of their herd should join the programme. Farmers who availed of the service last year have control over their disease problems this year rather than guessing what might be wrong. The tests include BVD, IBR, Johnes, Leptospirosis, Neospora, Fluke and Worms.

Cutting Costs

The cost of production should be minimised by identifying and cutting out unnecessary costs. Poor grass quality, resulting in higher concentrate costs and/or low milk yields, is the major cause of low profitability. Sometimes this may be accounted for by poor land type but more frequently by grassland management and lack of reseeding.

Unfortunately when farmers are under pressure they often cut costs that result in inadequate disease control or nutrition or other problems. For example we still have many farmers under feeding cows at critical times, using too little fertilisers and too few farmers participating in milk recording and breeding from dairy AI. In the present climate there is no scope for waste and every cost has to be examined. However, cutting back on some costs will reduce profits significantly.

Opportunities

A careful analysis of farm records indicate that producing a good healthy well-bred crop of calves can add over 7 cent per gallon to the value of a your milk sales compared with a poor crop of calves.

Maximising the price of culls generally adds another few cents per gallon. Reducing replacement rates from the present average of 28% to 18% will usually increase profit by 10 cent per gallon.

Difference in milk prices due mainly to composition and quality frequently reach over 6 cent per gallon. Other factors such as good herd health control including mastitis, lameness, abortions, fertility and digestive upsets have major influence on the profitability of dairying.

The biggest opportunity for cutting costs is by increasing the amount of quality grazed grass in the diet.

Where management is very good, milk yields of at least 1,300 to 1,400 gallons or equivalent in high solid milk per cow on moderate supplementation can significantly cut costs, as compared to present national average yields of 1,000 gallons per cow. Increasing lactations from the present average of 260 days to 290 increases profitability by over 5 cent per gallon. The main reasons for short lactations are late calving (and sometimes quota). Data from milk recordings shows the progeny of high EBI bulls leaves a profit of over €100 per lactation more than the progeny of stock bulls, on average. Yet, less than half of our dairy cows are from AI. The above are factors largely within farmers’ own control. Everyone may not avail of all these opportunities to increase profit but they must concentrate on improving their own weakness.

There are many other factors outside the farmer’s control which are eating into farm profits. These must be challenged by farm organisations and others concerned with the future of dairying.

nThe best management account available to farmers is the Teagasc Profit Monitor system and it is generally the more profit-focussed farmers participate in it. It is vital for farmers to have good records and accounts in order to maximise the profitability of their enterprises. Yet only a small proportion of farmers have adequate management accounts. This one of the many areas which have a huge influence in overall dairying profitability — regardless of the drop in the price of milk this year.

The price of milk is the major determinant of dairy farming profitability, and longer term prospects for dairy product prices are still encouraging — but don’t lose sight of the importance of records, and of grassland management, disease control and breeding.

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