Milk Matters


By Christine Pedersen Senior Dairy Business Consultant The Dairy Group


christine.pedersen@thedairygroup.co.uk www.thedairygroup.co.uk


OUTLOOK FOR MILK PRICE After 12 months of pandemic and a lengthy Lockdown 3, the market returns are looking upwards into the summer, and “where markets go eventually milk prices follow” says my colleague Nick Holt-Martyn of The Dairy Group. He goes on to say “global supply, USA aside, is looking muted, particularly the EU just as lockdowns are unwinding and there is undoubted pent-up demand in the hospitality sector in time for the summer season. The post pandemic bounce in the economy should be helpful to the dairy sector even though it has been surprisingly robust through 2020.”


milk contracts and implementing measures to “exploit” that contract to maximise milk price. Constituent payments should give producers a clear signal what their buyer wants and offer an incentive for producing that. In the short term, nutrition and feeding management are the main factors influencing milk composition; positive management changes can quickly and significantly alter butterfat and protein content. Nationally, average butterfat and protein levels dip during spring and early summer and severe penalties can be imposed if levels fall below contract minimums. Reviewing previous spring and summer milk quality results is a good starting point from which to develop a strategy.


OUTLOOK FOR COST OF PRODUCTION Dairy farmers will need higher milk prices just to stand still in the face of higher feed, fertiliser and fuel prices, especially if general inflation takes off as well; 2021 is looking like a year of inflation on both sides of the equation. An increase in production costs is a concern for many producers as the tight global supply and demand picture for soya, maize and wheat translates to higher spot and forward feed prices. Oil prices have been rising steadily since November and are headed to $70/barrel, the highest in 2 years, so fuel and fertiliser costs have also increased. As we embark upon the 2021 growing and harvest season, it is a


good opportunity for producers to review the last 12 months in terms of technical performance and address any weaknesses in crop production (quantity and quality) that have led to increased production costs. Given the increased cost of purchased feeds, focusing on growing and utilising high-quality forage should be a key objective for any dairy business. Profitability is directly linked to the amount of energy (and to a


Source: The Dairy Group The graph above shows the market returns and Defra farm gate


price for the last 12 months and clearly shows an improving picture as 2020 progressed. The initial reaction to the 1st


lockdown was reversed


by June/July since when markets have steadily improved. Milk prices rose to a point in January 2021 where the farm gate price was 1.4ppl above January 2020 and 2.5ppl above July 2020. January to March milk prices are important indicators because there are few if any seasonality adjustments and milk quality has yet to be affected by grazing diet changes. With wholesale prices rising in the EU, combined with weak EU


production, prices are set to improve further as European economies open back up. There is the possibility of a spring flush derailment, but as always until the weather declares its hand, we never know until it is upon us. Processing plant capacity is always an issue if the weather is very favourable which can impact on market prices in the short term at least. Rising global Gross Domestic Produce (GDP) is usually good for dairy markets and all the forecasts are indicating a sharp recovery in GDP. Producers can influence milk price by examining the detail of their


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lesser extent protein) that can be harvested and utilised, which will depend on the dry matter yield and energy content of what is grown. A key challenge is to grow the greatest amount of energy at the least cost. This means ensuring that soil structure is maintained, crops are supplied with sufficient nutrients and harvested at the optimum time. A good target for energy output is 110 GJ/ha (e.g.10tDM/ha @ 11MJ/ kgDM = 110 GJ/ha). There is increasing value in home grown protein. A better way to


look at forage is to view it in much the same way as arable crops and to consider the gross margin of growing different forages by applying a value to the quality of what is grown using the relative feed value. From our calculations, the highest forage gross margin crop is grazed grass at around £1,038/ha, followed by maize at £695/ha, with the multicut grass, red clover or lucerne forages all at a similar level around £600/ ha. The lowest gross margin is wholecrop at just £326/ha due to the relatively high growing cost and lower feed value. On many farms, a combination of maize and grass leys remains the most cost-effective option for conserved forage, particularly when you take into account the flexibility of grass leys for both grazing and silage. It is no surprise that grazed grass achieves the highest forage gross


margin, on most dairy units it is the cheapest feed available at around £60/t DM. As I write this column in early March, the favourable weather means that grass growth rates are improving and some producers have been able to start grazing. As ever, producers are encouraged to follow a two-step approach to increase milk from grazed grass. The first step is to maximise grass productivity through the targeted use of nutrients.


Comment section is sponsored by Compound Feed Engineering Ltd www.cfegroup.com


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