Milk Matters By Christine Pedersen


Senior Dairy Business Consultant The Dairy Group


www.thedairygroup.co.uk


DAIRY OUTLOOK Happy New Year! It’s no exaggeration to say 2018 was a very difficult year for all UK dairy producers and many will be pleased to see the back of it. The dairy industry has faced major challenges over the past five years, including the milk price crash to 22ppl in summer 2016 and the 2018 drought. This winter will prove to be no less challenging with milk price having peaked in November and a number of milk buyers, led by Muller, reducing their milk price by 1ppl from 1st December. We are forecasting the cost of production to increase by 2.8ppl (+9%) in the year to March 2019 which will mean a cost/price squeeze over the winter period. The main cost increases will be feed, straw, fuel and fertiliser. The drought appears to have had little impact on UK milk production so far but we are likely to see a decline in forage stocks at the end of the winter which adds to the cost of production. As I write this there is still so much uncertainty about Brexit.


Currency fluctuations directly impact on the UK milk price, with a ‘no deal’ likely to weaken the Pound (higher milk price) and a ‘Brino’ (Brexit in name only) likely to strengthen the Pound (lower milk price). With Brexit on 29th March 2019 many businesses are making contingency plans for a ‘no deal’, including stockpiling of imported goods. Ornua (formerly the Irish Dairy Board) who owns Pilgrims Choice is already stockpiling cheese in the UK to be able to supply consumers post Brexit in the event of a ‘no deal’. We are working with our clients on Brexit contingency plans – the key inputs considered being feed, fertiliser, seed, chemicals, veterinary medicines and fuel. For many farmers employing EU citizens, Brexit causes further uncertainty for the employer, employees and their families. Employees who are EU citizens will be able to apply for either settled or pre-settled status


which means they can continue living in the UK after 31 December 2020.


The recently published Agriculture Bill could have a major


impact on farm businesses, especially where the Basic Payment Scheme (BPS) is relied upon for individual businesses to generate a profit. Defra has announced the phasing out of BPS by 2027 and the decoupling from land from the start of the transition. The new ELM (Environmental Land Management) system will be trialled in 2019 ready for implementation in 2021. Defra has announced that the ELM will pay for ‘public goods’, such as better air and water quality, improved soil health, higher animal welfare standards, public access to the countryside and measures to reduce flooding. It is unlikely that the loss of BPS income will be replaced by ELM income and businesses should anticipate a decline depending on their current level of engagement with Defra schemes such as Stewardship and Catchment Sensitive Farming. As I wrote in my previous column, there are many outside


influences on farming that add risk – government policy and Brexit are good examples. Whilst producers have little influence or control over either, they can find opportunities to mitigate the risk of potential outcomes.


CALF AND HEIFER NUTRITION Heifer rearing is frequently cited as the second highest cost of milk production but is often over-looked, in the same way that the cost of forage is, as there isn’t a line in accounts that reads ‘heifer rearing’ or ‘forage production’. Costs are often spread over many areas and whilst variable costs such as feed, vet and bedding should be easy to allocate, allocating overhead costs, particularly labour and power and machinery, can be more challenging. A survey of 102 farms published by DairyCo (now AHDB Dairy) in


2015 calculated the average total cost of rearing (including opportunity costs) of £1,800 with a range from £1,100 to £3,000 per heifer. The economic benefit of rearing heifers to calve at 24 months or less is well established. The same DairyCo report calculated that each additional day of age at first calving increased the average cost of rearing by £2.87 per day. The average age at first calving in UK is between 26 – 27 months which means the average heifer is potentially costing £170 - £260 more than if she calved at 24 months. Calving at 24 months requires regular monitoring of frame size or growth rates to ensure that heifers are meeting key targets, particularly at service and calving. The second round of the Countryside Productivity Small Grants Scheme (CPSGS) may include some calf specific equipment including weighing systems (see details below). As those who give advice on calf nutrition will be aware, as the


weather gets colder, calves require more energy to keep warm so if additional energy is not provided via feeding, energy is directed away from growth and growth rates will be reduced. Changes to feed volumes or milk replacer concentration are necessary below 10 °C for calves less


PAGE 12 JANUARY/FEBRUARY 2019 FEED COMPOUNDER


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