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Milk Matters By Christine Pedersen

Senior Dairy Business Consultant The Dairy Group

Prospects for Milk Producers Dairy market analysis shows the MPE (market price equivalent) to be 31.7ppl, which should deliver a farm gate price of 29 to 30ppl. Dairy markets have been fairly stable over the past 6 months and the cold wet spring should limit EU milk production and provide market stability going into the summer. Some of the recent price cuts down to 26ppl appear to be over-zealous and not a reflection of the dairy market, but of marginal intervention products which account for a small part of the UK market. Some futures contracts are being offered; farmers should be wary of committing to these, especially where a volume is committed without knowing the price. Where the futures offer is based on a known volume at a known price then the business can make a judgement in relation to their own cost of production. The following graph shows the monthly and rolling UK average milk price over the past 3 years:

UK average milk price & cost of production (ppl) 35.00

Year to Total Milk Yield (per cow)

March 2017 9,542 litres

Home Grown Forage Yield (per cow) 3,575 litres Concentrate Use (kg/litre) Purchased Feed Cost (ppl)

0.27 7.77

Year to

March 2018 9,427 litres 5,105 litres 0.24 6.29

Whilst the herd performance for the year to March 2017 is within the

Top 25% of MCi costed herds, the improvement in milk yield from forage is very impressive and firmly puts the herd within Top 10%. A review of cost of production a year ago highlighted scope to reduce purchased feed costs and a target of 6 ppl was set. In spite of a 5% increase in concentrate cost per tonne, the saving in purchased feed of almost 1.5 ppl is equivalent to £18,000 for this herd producing 1.2 million litres of milk per annum. Two factors have brought about this change. Firstly, an increase

in the quantity of forage available meant that forage has displaced more expensive forage substitutes in the ration. At the same time, improvements in the quality of forage, particularly the grass silage (which makes up roughly 50% of the conserved forage with maize silage making up the remainder) meant that rations can be formulated with high levels of forage dry matter intake (target 16 kg/head/day) thus displacing more expensive concentrates whilst ensuring that nutrient requirements are still met:

Grass Silage Results DM%


ME MJ/kg DM Protein %


2016/17 29.7 11.1 12.4

2017/18 29.4 11.8 13.7

I can imagine the reader asking how knowing this might benefit you 20.00 Month ppl Rolling ppl Low cost Average cost High cost Source: The Dairy Group Ltd The average milk price masks the variation between milk contracts

of up to 6ppl; dairy producers are advised to keep their options under review whilst ensuring that they are maximising the milk price their contract offers through butterfat and protein payments and other bonuses where possible. The graph also shows three levels of cost of production (including

unpaid family labour, rent & finance), with the average cost of 30ppl our best estimate of the cost of production at the present time. Even the low-cost producers at 25ppl would be in deficit for approximately half the period and the average cost producers at 30ppl would be in deficit for most of the period. This hopefully helps to explain why dairy producers are keen to secure good deals for feed which can contribute to as much as a third of their cost of production.

Milk from Forage Milk from forage is well documented as a strong driver of profitability. As feed compounders know, conditions “in field” and the decisions made during May set the tone for milk production and purchased feed costs for many months ahead for those producers using significant proportions of grass silage in diets. Take a look at the performance of this herd:


as a feed compounder. If you didn’t realise just how tight the margins in dairy farming are, hopefully you have a better idea now but also understand why there is an industry drive for milk from forage. In spite of best plans and intentions, the weather is outside of anyone’s control and for many, this spring has been the most challenging for a generation. Many producers have already been forced to eat through forage stocks reserved for buffer feeding and have struggled to get on to fields to spread slurry and in some cases, fertiliser. With the heading date of grass being predominantly controlled by day length, although we should still be aiming for the same cutting date as for an ‘average’ year (early May), how many producers will hold off, waiting for crops to ‘bulk up’ and therefore jeopardise their silage quality? Before cutting, producers are advised to analyse grass for dry matter, protein, sugars and nitrates to reduce the risk of butyric silage and to make informed harvesting decisions. Increasing numbers of producers have been encouraged to take

grazing grass samples and adjust rations accordingly. As expected, recent results indicate ME of 12 MJ/kg DM or more and crude protein levels around 25% which can be tricky to balance with buffer TMR / parlour compounds. One of the biggest challenges faced at this time of year is balancing high quality grass into diets and maximising milk from forage whilst keeping butterfat levels as high as possible so that hefty butterfat penalties (up to 2 ppl) are not incurred. There was nothing more frustrating than a client phoning to ask what to do as their butterfats were below their 3.50% contract minimum. This doesn’t happen anymore as the daily flow of milk quality results that both producers and advisors can access means we can take preventative action if things start to slide.

Comment section is sponsored by Compound Feed Engineering Ltd

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