Although the milk price is low in the UK, farmers should view price volatility as an opportunity.
That was the message from Greg Bethard, chief financial officer for Pagel Ponderosa Dairy and Dairy Dreams, which collectively milk 7,800 cows in Wisconsin.
Speaking at Total Dairy, he said: “The last thing I want in the dairy sector is a stable milk price, we will not make as much money and opportunities will reduce. Volatility means the market is working.
“If you do not have optimism in the future of dairying, sell your cows and do something else. The key is to ride it out and get your financial house in order ready for when the price lifts.”
Mr Bethard gave his top tips for coping with volatility.
THE SOLUTION TO POLLUTION IS DILUTION
Dairy farming is commodity manufacturing business so the market will bear all the milk we can produce – the key is to produce milk at the lowest cost per litre.
The goal during a period of low milk price is to keep the business running as normal.
Very little changes on our dairies when the milk price is low, including diets. To do this, farms must have stable lines of operating credit and enough money in the bank to keep paying staff and buying feed.
Continuing to run the business as normal is key, so keep your shed running at maximum capacity, full of healthy, pregnant cows which are milking well, and are geared up to take advantage when the milk price rises.
We are successfully running a system of 20 per cent over capacity. I have seen dairies running at 50 per cent over capacity, and others which can not run at above 5 per cent – find the ‘sweet spot’ for your unit.
Bad dairies let things erode during periods of low milk price and therefore can not make the switch when the price goes back up. Manage the cycles of price fluctuation and know your costs inside out.
The goal during a period of low milk price is to keep the business running as normal.
Very little changes on our dairies when the milk price is low, including diets. To do this, farms must have stable lines of operating credit and enough money in the bank to keep paying staff and buying feed.
Continuing to run the business as normal is key, so keep your shed running at maximum capacity, full of healthy, pregnant cows which are milking well, and are geared up to take advantage when the milk price rises.
We are successfully running a system of 20 per cent over capacity. I have seen dairies running at 50 per cent over capacity, and others which can not run at above 5 per cent – find the ‘sweet spot’ for your unit.
Bad dairies let things erode during periods of low milk price and therefore can not make the switch when the price goes back up. Manage the cycles of price fluctuation and know your costs inside out.
REALISE QUALITY AND COMPONENT PREMIUMS
We get a somatic cell count (SCC) premium of €1 per US 100lbs milk, irrespective of whether the milk price is €20 or €12 per US 100lbs for example.
Take advantage of premiums as these will help maintain margins in low price periods.
Take advantage of premiums as these will help maintain margins in low price periods.
KEEP YOUR FRESH COWS HEALTHY
In bad times the last thing farmers should do is neglect fresh cows.
Poor fresh cow health will erode a dairy over time and impact badly on pregnancy rate, income over feed costs and early lactation culls. If you are cutting costs in your business, this is not an area to be looking at.
Poor fresh cow health will erode a dairy over time and impact badly on pregnancy rate, income over feed costs and early lactation culls. If you are cutting costs in your business, this is not an area to be looking at.
GENERATE PREGNANCIES
There should be no substitute for this. Pregnancies are all about cow flow and cow flow impacts cash flow and IOFC.
The success on our dairies stems from good reproduction. It is amazing how improving fertility changes the complexion of a dairy.
The success on our dairies stems from good reproduction. It is amazing how improving fertility changes the complexion of a dairy.
CLEVER COST CUTS
Two of the main costs of milk production are feed and replacement costs per litre, so consider these when looking to improve efficiencies.
Most look at cull rate, but this does not say anything about the value of the cows you sell. Do not hang onto cows with no value – offer them a career change and sell cull cows when they are fit and worth money.
Litres per cow means nothing, focus on cost per litre.
Most look at cull rate, but this does not say anything about the value of the cows you sell. Do not hang onto cows with no value – offer them a career change and sell cull cows when they are fit and worth money.
Litres per cow means nothing, focus on cost per litre.
PROCURE HIGH QUALITY FORAGES
Forage should be of the highest possible quality, and this again should not be compromised when the milk price is low.
A lot farmers let forage quality slide in a bid to save a bit of money but remember, the feed you are making today, might be getting eaten next year, when the milk price is high.
A lot farmers let forage quality slide in a bid to save a bit of money but remember, the feed you are making today, might be getting eaten next year, when the milk price is high.
MAXIMISE INCOME OVER FEED COST
This is arguably one of the most important figures on any dairy farm and is calculated as milk revenue minus feed costs. When times are tough make sure any management changes do not negatively impact this figure.
Calculating income over feed cost (IOFC):
Calculating income over feed cost (IOFC):
- Cow produces 30 litres per day
- Milk price is 22ppl
- Feed cost is £3.50 per day
- Milk revenue = 30 x £0.22 = £6.60 per cow per day
- IOFC = £6.60 – £3.50 = £3.10
Increasing the IOFC is good, provided cow health is not impacted.
MINIMISE REPLACEMENT COSTS
Replacement cost could be worked out by taking the cow cull value away from the cost of the heifer coming in and dividing it by total litres. In the UK, replacement cost should sit at around 0.5ppl.
CONTROL LABOUR COSTS PER LITRE
The only way I know how to fix labour costs is by dilution – spread the costs over more milk.
Like everyone else, we are looking at robots to save labour on our two dairies. I used to be on an advisory board for a dairy which milked 1,000 cows by robots and another 1,000 cows through a conventional parlour.
We did not save any labour costs on the robotic system because we replaced relatively low cost milking staff with more highly qualified herdsmen to manage the robots, so the labour cost difference was negligible.
Like everyone else, we are looking at robots to save labour on our two dairies. I used to be on an advisory board for a dairy which milked 1,000 cows by robots and another 1,000 cows through a conventional parlour.
We did not save any labour costs on the robotic system because we replaced relatively low cost milking staff with more highly qualified herdsmen to manage the robots, so the labour cost difference was negligible.
MINIMISE FEED SHRINK
Feed shrink is the amount of feed delivered or grown on farm which does not get consumed by the cattle.
It is by far the biggest cost to any dairy and has been a very big topic in the USA recently.
It is something I would encourage farmers to measure and keep track of. Work out how a reduction in feed shrink would impact on margins.
It can be the result of delivery weight errors, birds, rodents, tyres and tracked feed, cattle tossing feed, silage bunker losses, feed refusals, bunk heating and spoilage, moisture losses, mixing errors, scale accuracy and water damage.
It is by far the biggest cost to any dairy and has been a very big topic in the USA recently.
It is something I would encourage farmers to measure and keep track of. Work out how a reduction in feed shrink would impact on margins.
It can be the result of delivery weight errors, birds, rodents, tyres and tracked feed, cattle tossing feed, silage bunker losses, feed refusals, bunk heating and spoilage, moisture losses, mixing errors, scale accuracy and water damage.
Source: FG Insight
