Back to Basics: Guidelines for Profitable Dairy Farming Michael Verner 25 January 2011

Outline  Where we are today  Does milk from forage matter?  How important is feed efficiency?  Are there economies of scale?  The prospects for 2011 and beyond OUTLINE

Feed and fertiliser prices: Feed and Fertiliser Prices

The rising cost of production The Rising Cost Of Production

Does milk from forage matter? Does Milk From Forage matter

How we’ve changed Change Herd size Milk yield (litres/cow) MFF (litres/cow) How we’ve changed

FeedCash cost (£/t utilisable DM) Full economic cost (£/t utilisable DM) Grazed grass44 (35 – 56)80 3 cut silage76 (69 – 109)122 Wholecrop wheat74123 Forage maize77 (72 – 162)121 Concentrates The ‘real’ cost of forage

Definition: Net Profit (£/cow)  Net profit = Output – (Variable costs + Overhead Costs) Variable costsOverhead costs Forage Concentrates Vet and Med AI Miscellaneous Machinery running costs Contractor costs Depreciation Property repairs Business costs Miscellaneous Labour Conacre Finance / Interest Definition: Net Profit (£/cow)

Milk from forage and net profit 2% 4%11%22%21%38% Milk from forage and net profit

“The man with money and grass will not waste the grass” Does milk from forage matter?

How important is feed efficiency?

How we’ve changed Change Herd size Milk yield (litres/cow) Meal fed (kg/cow) kg/litre 0.32 kg/litre How we’ve changed

Milk yield versus meal fed fed 2.5 tonnes 8000 litres 2.5 tonnes 6200 litres

Measures that matter – Feed rate Example 100 cow herd selling 7,500 litres/cow from 2 tonnes of concentrates Buys 200 tonnes of dairy concentrate Sells litres of milk Farm has a feeding rate of: (200 x 1000kg) = = 0.26kg/litre Measures that matter – Feed rate

The link between feed rate and profit Example farm = 0.26kg/litre 8% 17%28% 8%3% The link between feed rate and profit

Feeding Method Herds fed concentrates;  In parlour£300/cow net profit  In OOPF£280/cow net profit  Via TMR£180/cow net profit (range: loss of £300 to profit of £600) Feeding Methods

Successful TMR feeding  Feeding quality forage(s)  Batching cows  Feeding to the lowest yielding cow in group and ‘topping up’  Moving cows as yield declines and adjusting parlour feeding  Calibrating parlour feeders  Checking crude protein of ration esp. with inclusion of maize  Staff understanding Successful TMR feeding

“Margin is sanity, volume is vanity” How important is feed efficiency?

Are there economies of scale?

Herd size Profit from dairying Total profit from dairying 100 cows170 cows 8% 15%19%25%20%13% Total profit from dairying

Herd size Profit from dairying Total profit from dairying Controlled expansion maintain performance Little expansion regain performance Total profit from dairying

“Get better before you get bigger” Are there economies of scale?

The prospects for 2011 and beyond

The answers!  Does milk from forage matter? Yes - High quality grazed grass and grass silage are vital to ensure future profitability  How important is feed efficiency? Very – Concentrates are the single biggest cost on most dairy farms  Are there economies of scale? Probably – but make sure performance is good and then expand gradually, remember profit equals margin x volume! The answers

What are the prospects?  Good prospects for milk prices despite volatility  Input costs will remain high or further increase  Quality forage has an essential role to play in maintaining our competitiveness  The top 50% of Northern Ireland dairy farmers have a profitable and sustainable future What are the prospects?

Benchmarking – what’s it all about?  Do you know what level of profit your business is making?  Do you know how each category of your costs compares to other farmers in Northern Ireland?  Do you know what are realistic physical and financial performance targets for your dairy system?  Benchmarking – “Measure to Manage” Benchmarking- what’s it all about?