Agribusiness News October 2023 – Sector Focus: Dairy

Focus on What you Can Control!

While the milk price and many input costs are out of our hands; there are still opportunities to reduce costs in areas we can control. As cows transition to being housed, it is a good time to review herd nutrition, as feed accounts for up to 30% of total production costs. However, be cautious about cutting costs just to save money. Think how it will impact milk output, cow health and fertility. There may be more scope to make savings in youngstock, so consider all opportunities.

Feed costs

Review all rations with recent forage analysis to see if purchased feeds can be reduced. Are there areas where you can utilise more forage? This might be more applicable in a low yielders group or with in-calf heifers. For example, there is less need for quality bypass protein in youngstock diets and so rapeseed meal could be more cost-effective compared to soya to make up any protein shortfall in forage. Currently, rapeseed meal is the most cost-effective protein source per percent protein. However, this does not consider protein quality (i.e., level of bypass, rumen undegradable protein which is of increasing importance in higher yielding cows).

Changes to feeding management could help  improve forage intakes to drive more output. For example, more regular push ups or better management of feed refusals (aim for 3-5% in the milking herd). Alternatively, can concentrate levels be reduced slightly? It is important to consider how a reduction in concentrate costs could affect milk output and overall income.

For example, 1kg of dairy cake on an energy basis is equivalent to 2 litres of milk. If cake costs £340/T, that’s 34p/kg or 72p worth of milk at 36ppl. Replacing 1kg of cake with the same dry matter from silage (3kg of silage at 30% DM, and £40/t or 4p/kg), saves 34p on cake and costs 12p on silage, a total saving of 22p. If cake is 13ME, and silage 11.5ME, the reduction in energy intake is only 1MJ, equivalent to 0.2 litre (or 7.2p worth of milk).

The response in yield will depend on the quality of the silage and whether the protein content of the ration is impacted significantly. It is best to seek nutritional advice on concentrate feeding rates and where opportunities lie for savings. Cutting concentrates too much has risks for body condition and fertility in early lactation and this strategy would be better suited to mid-late lactation cows that are confirmed in calf. This can reduce the risk of overfeeding concentrates (and some feed additives) to lower yielders that could produce more milk from forage. Alternatively, savings could be made by reformulating rations with a slightly lower protein content, rather than reducing concentrate levels.

Cashflow & Creditors

Think about how the Bank of England base rate increases over the last few months (held at 5.25% as of 21^st September), will affect debt payments and cash flow if your interest rate on repayments is not fixed or is coming up for renewal. The amount of debt the business has, and the term of the debt will affect how much payments will increase, and the longer the amortization period, the greater the impact.

Speak to those you owe money to. If creditors are aware of your financial situation, they may be able to offer a solution by spreading the cost of payments, restructuring debt or a temporary postponement of loan payments. It is best to have these conversations earlier rather than later to see whether there are opportunities to alter current payment schedules, which will also reduce stress levels.

Monitoring your cash flow regularly will help to have a better understanding of where the peaks and troughs in income and expenditure are. Milk income will vary with the calving pattern and future monthly milk output can be forecasted with the calculator:

https://ahdb.org.uk/milk-forecasting-calculator

Know your costs

Milk price isn’t everything though. When looking at economic performance, previous work by AHDB has shown that the top 25% of all-year-round calving herds made 12ppl more margin compared to the bottom 25% and their costs were 10.5ppl less. The more profitable herds had lower replacement costs and spent less on feed and forage, power and machinery and unpaid labour. You can benchmark your costs against other similar herds https://www.fas.scot/rural-business/business-tools/whole-farm-benchmarks-tool/  or do a simple gross margin/output analysis to help identify where costs are higher than the target percentages below:

Lorna MacPherson, lorna.macpherson@sac.co.uk