Dairylink farms plan ahead to manage cash squeeze

20th June 2015

Dairylink farms plan ahead to manage cash squeeze

DairyLink programme farmers have re-focused their attention on to what they can control - performance, management and running costs. Conail Keown reports.

To manage the current squeeze on margins, a number of the DairyLink program farmers have re-focused their attention on what they can control – namely the performance of their herd and the management of their farm with particular emphasis on daily running costs.

From a financial measurement perspective, completing a monthly cashflow budget must be the number one priority for dairy farmers. A significant drop in monthly farm income due to the current milk price coupled with some large overhead costs incurred at this time of the year such as contractor charges and fertiliser bills can have a detrimental impact on any farm’s current account.

Managing this situation and planning ahead is vital for all farms. Getting control of farm spending and identifying the peaks and troughs in cashflow on each farm will make a difference in the current financial climate, and may be the only way a farm business can survive.

As part of the programme, all Dairylink farmers are engaged in developing a two-year cash budget based on current milk prices and individual farm production profiles. This will identify specific areas within the business that require immediate attention with regard to income and cost control.

Short-term cost control

Feed costs are the biggest variable cost, accounting for between 3.80 -10.01 pence per litre (ppl) on Northern dairy farms, according to CAFRE dairy benchmarking. Small changes to feed efficiency and maximising grass utilisation on the farm will make a big difference to bottom lines.

Reducing feed rates by 0.05kg/litre at current feed prices for a 100-cow herd averaging 28 litres per cow, will reduce feed costs by £230 (€320) per week.

Another cost control measure some Dairylink farmers are considering is culling problem cows with repeat mastitis, those with high SCC and those that are difficult and costly to get back in calf.

The saving here can be significant in terms of reduced veterinary treatments, and the extra cull cow income will be beneficial to cashflow. Phasing payments for large bills such as fertiliser over a number of months should be considered for all large payments going out, and this is also being implemented by the Dairylink group to help cashflow.

Long-term strategy

Farmers must have a good knowledge of the system of milk production they operate and understand if it is delivering the necessary return on the key inputs of capital and labour.

Developing a system of production that is sustainable, and most importantly profitable, going forward in an increasingly volatile market is essential. Key to this is an understanding of what is working now and what has worked in the past for both the farm and the farmer in terms of profitability and not the drive for maximising litres produced.

On many farms, reducing costs in the short term may help the situation. However, if significant additional financial assistance is required from outside the farm, maybe a more radical change to the production system is required to keep the business viable.

Flexibility in the production system is a key factor for Kevin McGrade in Co Tyrone. Managing cows in difficult weather conditions and on a heavy clay soil type can be a considerable challenge which requires an ability to react to specific conditions.

Kevin has adopted a similar proactive approach to the current downturn in profitability in milk production, which has been helped by his development of a production system to cope with such adverse conditions.

Nonetheless, he admits the current pressure on margins is proving to be a challenge:

“Feed is the single biggest cost for all dairy farmers, so maximising production from relatively cheap feed like grazed grass and forage on my farm is where I’m focused just now. My cow type and calving profile have allowed me to reduce concentrate feeding and really focus on getting milk from grass.”

Kevin has developed a compact winter-calving herd in which the majority calve between September and December.

Historically, breeding focused on milk components with annual butterfat of 4.56% and protein of 3.56% for the herd, but more recently he has shifted the breeding focus to cow fertility and hopes to further improve both the current 391-day calving interval and the herd’s 55% conception to first service achieved last year.

With the cost of infertility rising on all farms, he is convinced cow fertility is a key area on his farm where more savings can be made than if he focused solely on daily production costs on the farm.

“Short-term cost savings can help on some farms, and I always price around when buying inputs. However, we have been trying to cut cost over the past 10 years so I don’t think any significant savings will be found over the next few months,” he said.

“Getting the overall farm strategy correct is more important. The cow type, calving profile, land type, grazing management, and labour availability must all complement each other in order to maximise resource utilisation on the farm.”

Kevin concedes his milk output will be lower this year than last - as a direct result of the reduced concentrate feeding throughout the 2015 year to date. Cow condition is still on target and drying off will begin in July.

Currently cows are yielding 20 litres on 1kg concentrate with butterfat at 4.49% and protein at 3.64%. Table 2 highlights the herd’s performance last year.

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