Dairy farming can be “harshly challenging” or even “a great way of life” – depending on which dairy farmer you ask, writes Tom Murphy, B&T Dairy Adviser, Teagasc, Galway/Clare.
Certainly, for some dairy farmers, it is also a profitable and sustainable business that is worth taking seriously. Looking in from the outside, it would seem that many dairy farmers do not see their role as business managers.
If they did, then they would already know what their costs of production were in 2019 and where each cost was incurred.
As with all other businesses, this information should form the basis of a plan to manage costs and production which will lead to improvements in performance and profitability in 2020.
In dairy farming circles, individual farms are not in direct competition with each other in a business sense, and there is great opportunity to share all financial information for the mutual benefit of all concerned farmers.
The core of the Teagasc Dairy Advisory Service is centred on the positive flow of relevant technical and financial information between dairy farmer clients who meet on a regular basis as part of a committed Discussion Group.
The momentum for development and improvement on individual farms and for Discussion Group members depends on the assembly and analysis of their production and financial performance.
Teagasc have developed an electronic Financial Analysis Programme called the “Profit Monitor” (ePM) which allows the farmer to study his or her figures and yearly progress and benchmark them accordingly.
All experienced advisors will agree that progress is inevitable, when a farmer proactively seeks to analyse his or her figures and plan ahead. The serious-minded dairy farmer benchmarks their farm against the top percentile performers.
In late 2019, Teagasc economists presented their annual review of dairying, based on figures collected and collated (for 2019) through the National Farm Survey (NFS).
These results and projections were based on information derived from a representative number of dairy farms varying in size and category.
They give a good representation of national average dairy farm operations and their average production and financial performance. They also set the scene for expected trends from ePMs, which are analysed from early January.
These NFS figures show that, in 2019, production increased by 6% as Dairy cow numbers increased by 1.6% to 1.5million.
Although, 2019 milk price is down 4% on the previous year, to an average of 33.6 cent per litre (cpl), production costs have also fallen by 11%. A noticeable and expected improvement from the “weather challenged” and “high production cost” year of 2018 was the reduction (by 19%) in dairy concentrate feed use in 2019, to about 1.1-tonnes per cow.
Fertiliser use also decreased with the return to normal production conditions. Overall, the resultant cost of producing one litre of milk in 2019 was 23.84 cpl.
These projections lead to an improvement of 16% (1.5 cpl) in net margin in 2019 compared to 2018 or 11.1cpl in 2019. On a per hectare basis, this manifests itself as a net margin of €1,353.
Improvement of €39/cow
At this stage, actual complete production figures are being analysed through the Teagasc ePM programme. Be aware that ePMs are completed by the more-focused and profit-conscious farmers and are not representative of the national average.
By mid-January 2020, there were 377 ePMs completed for spring milk production dairy farmers. These showed an average cost of production of 22.8cpl, leaving a net margin of 12.6cpl; this corresponded to a profit per ha of €1737 or €734 per cow.
These results were achieved at a stocking rate of 2.3cows per ha. Compared with 2018 (ePMs completed on 1331 spring Calving farms), ePMs completed to date show an improvement of 0.45cpl or €39 per cow.
For the business-minded dairy farmer, you will be interested to know that in 2019, the top 25% of farms, analysed to date, (ranked by net margin/ha) achieved a net margin of 16cpl or €987 per cow. Yes - a difference of 3.4cpl or €253 per cow compared to the average. This difference is even greater when we look at the top 10%, and greater still when we look at the top 5%.
Whether you like your dairying or not, as a business-person, you should get a profit monitor analysis carried out for 2019.
With some sensible benchmarking and a plan for 2020, you will be on the right road to a better performance, and you will probably get to like your dairying a lot more.