Farm Margins in 2017
We are all in dairy production for a range of reasons, but ultimately, profitability must be achieved.
This starts with understanding the market; how your milk contract is affected by the market and how that dictates farming practices. There is more variation in milk contracts now than ever, meaning what fits your neighbour may not be suitable for you.
This said, milk is a commodity, so all dairy farms are exposed to the fundamentals of supply and demand, which dictate on-farm milk prices more than anything. Over the last five years we have seen low supply, followed by a boom and a depression in milk prices through high supply periods.
Currently in the UK we are supplying 6% less milk than the three-year average, a pattern mirrored across Europe, causing some extreme lifts in milk products that will certainly mean continued rises in milk prices during 2017.
As we all know, you can’t just turn cows on and off like a tap, so expect the current situation of low supply to be the dominant story for the foreseeable future.
Medium term demand will continue to rise, driven by an increasing population, wealth and product development, with demand likely to be far more consistent than milk supply. The only outcome to that is a rocky road of milk prices for the foreseeable future.
On the other side of the coin, feed supply on an international level is in abundance, with the only exception being cereals in Europe. In real terms this means the feed cost to milk price ratio should be an improving picture for UK dairy, but unstable currencies in such a politically turbulent period means this will be blurred by sterling’s relative buying power. That’s down 20% against the euro since May. However, at the time of writing, the euro has been hit by Italy’s political storm.
Managing dairies to maximise profitability
As the foot goes on the gas in many dairies, caution must be taken, with more focus on cost control than ever.
Dairies must claw back lost ground and build cash reserves for the next fall in milk prices three years down the line. Only the farmers who are technically efficient and on the ball will prosper, especially as we will see cost inflation up to 20% due to currency fluctuations.
Now is the time to analyse your business and unlock the bottlenecks. With profitability potential on the rise, sensible investment in infrastructure, but more importantly into systems to better manage your herd, is important.
Avoid inertia due to a high milk price, as this will lead only to missed opportunities to improve profits.
Regular locomotion and Digital Dermatitis (DD) scoring is an invaluable tool to measure the recoverable costs and knock on effects of herd lameness. This includes heifers and especially dry cows – the overlooked part of the herd which has a huge knock-on effect when it comes to locomotion and DD.
80% of your management focus should be on this 20% of a cow’s lactation. It’s make or break time for your cow; where prevention of disease and optimising lactation performance are the drivers. Non nutritional factors such as lying space and barrier space, along with rumen fill and body condition, are key metrics to identifying possible hazards ahead.
This is the most important factor in nutrition and the cheapest to get right. Ok, we can’t always rely on the great British summer, but stack the deck in your favour; cut early, avoid heavy fibrous crops and pit it well. There is no excuse for poor clamp management. Sack your contractor if they don’t do a good job – they need to be held accountable for poor harvest management. Forage quality is a key area for marginal gains on farm, where little improvements which cost nothing aid every cow on the holding.
Focus has to be around lying times, feed access, environment and stocking rates to give cows the best chance to perform. These are metrics which all need measuring to track changes and evaluate performance.
This is the driver of profitability on farm. Metrics such as percent served by 80 days, 100 day in-calf rate and pregnancy rate help evaluate performance and lead to continuously improved fertility. Get all of the other things right and fertility will improve considerably if managed correctly.
Many dairies operate to a high standard in these areas already, but if key metrics are monitored and measured, opportunities for marginal gains may be exposed.
At Wynnstay, our Dairy Technical Services are focused around this, aiming for controlled, measured, continual improvement to maximise margins on farm, whatever the milk price.
You will find more information about our services in these pages or contact us for more information