Livestock ‘Better efficiency key to
boosting dairy profits’ • Big range in dairy farm performance • Net worth falls for many businesses • Key factors include feed and labour
H
igher milk output is not necessarily the magic bullet for higher dairy profits – with consultants recom- mending a closer focus on produc- tion efficiency than yield alone. Announcing the latest results from the company’s farm busi- ness accounts service, Promar International managing direc- tor Neil Adams said the figures highlighted the challenging 12 months faced by producers dur- ing the year to 31 March 2019. “While milk prices rose 3%, most other price movements worked against dairy profits,” he said. Energy prices were up 14- 20%, feed prices were up 9%, the forage season was poor and bar- ren cow prices fell while calf pric- es remained broadly unchanged. Average milk yields rose 2.4% and herd size increased 1.2% – which meant income per cow was 5% higher than the previous year. But increases in total feed costs (up 11.9%) and variable costs (up 8%) and a 2.8% increase in over-
heads saw profit per cow down by 13.2%.
Superior cost control “Combining these factors, the av- erage profit for the 500 matched farms in our sample fell from £103,000 in 2018 to £73,000,” said Mr Adams. “Net worth – which is the true measure of farm sustain- ability – fell for 45% of the farms in the sample.”
A vast range in performance
between producers saw a huge 240% difference in profit per cow between the top and bottom farms – principally due to supe- rior cost control in all areas of the business.
The top farms ranked on oper- ating profit had 13% higher out- put per cow, an 8% lower feed rate, 17% lower variable costs and 28% lower overheads. This suggested farmers must focus on efficien- cy of production, not just scale of operations. “For many years there has been a trend and ambition to pro-
duce more – more cows, more milk per cow with an increased reli- ance on purchased feeds, but our analysis starkly shows that this is not necessarily correlating with improved profitability.” Mr Adams added: “While some businesses have done very well by increasing scale and output, suc- cess is not guaranteed.
Driving efficiency “When we compared the top 25% of farms ranked on milk yield with the top 25% ranked on to- tal variable costs, we found that the profit per cow on the highest yield farms were lagging signif- icant behind the high cost effi- ciency farms.
“While the high output herds had 30% higher output per cow, their feed rate was 24% higher, they had 21% higher variable costs and 13% higher overheads. Across the board the higher yield farms were carrying on average, higher costs resulting in a 62% lower profit per cow. “The vital message is that it is not what you produce, but how you produce it. On average, high- er efficiency will be more impor- tant for sustainable businesses that high output.”
Liquid milk sector faces slow recovery
Dairy farm earnings will re- cover only marginally in the coming year, according to a report by accountants Old Mill and the Farm Consul- tancy Group.
Cheap milk
Although any production system can make a profit or a loss, year-round calving herds tend to be towards the lower end of the scale, with spring-calving herds likely to make more on a per-litre ba- sis, says Neil Cox, director at Old Mill.
“This is due to their ability to produce cheap milk, which insulates them against low- er milk prices.”
But spring calving herds
have lower than average yields. “As yields climb, a lower margin is needed to maintain profit per cow. The best farms carefully mon- itor the costs of producing marginal
litres, Uncertainty
Looking ahead to the 2019/20 milk year, the better summer, likely higher yields and lower feed costs should help boost profits by 0.71p to 3.4p/li- tre or £269/cow. But Brex- it means there are argua- bly more uncertainties over profitability now than at the same point last year. Last year’s cost increases were mainly due to drought, says the report. Most of these costs are likely to be reversed this year, but it still leaves only £76,400 for a 2.1m li- tre dairy farm to cover rent, debt finance and repayment and taxation on a 30p/litre milk price.
Differences in feed costs are a major factor in profitabilIty DECEMBER 2019 • ANGLIA FARMER 49 to pre-
empt those margins getting squeezed.”
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