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News > Controlling the costs of milk production – Monitoring, comparing and planning your financial performance

CAFRE

Controlling the costs of milk production – Monitoring, comparing and planning your financial performance

April 17, 2020

Mark Scott, Senior Dairying Adviser, CAFRE, Newtownards.

Throughout the COVID-19 crisis there will undoubtedly be turbulence in the market for agricultural produce. It is important that farmers do everything in their power to ensure their business can weather this storm until markets around the world and at home settle once again. This is the second article in a series of three which will look at options to control costs on Northern Ireland dairy farms in order to remain resilient throughout the current crisis.

Working with your CAFRE adviser

Mark Scott
It has been consistently shown that farmers who work with their CAFRE adviser outperform the Northern Ireland average. There is no magical reason for this but simply that the products offered through your local adviser give an excellent overview of your business, compare it with other businesses doing the same job and give you access to a professional who can offer independent advice and knowledge in your particular sector. In addition to this an important part of the CAFRE offering is the coming together of farmers in groups through the BDG scheme. Obviously the meeting part of this offering has been paused presently but will resume as soon as possible. BDG groups are staying in touch in a variety of ways including WhatsApp which helps keep members connected in difficult times and continues the exchange of ideas and knowledge.

  

Monitoring through CAFREs DMOC programme

Dairy Margin Over Concentrate (DMOC) is a program available to all dairy farmers through DAERA online services under CAFRE Benchmarking. Margin over Concentrate is calculated by taking concentrate cost away from milk value. The importance of this figure is apparent when you consider that for the average CAFRE Benchmarked dairy farm concentrate costs account for 66% of variable costs and 41% of total costs of production. The DMOC program set up by CAFRE however has many more benefits in terms of data analysis of monthly inputs and outputs on farm. Average daily milk yield, daily milk from forage and concentrate feed rate are all part of the monthly output. Farmers who have recorded 12 months of data will also have the benefit of viewing annual results for these figures.

The monthly input required to receive the above report for your dairy enterprise is simple.
1. Cows in milk
2. Cows Dry
3. Litres sold and used on farm
4. Butterfat, Protein, SCC, Bacto scan
5. Meal used and price

And as soon as you have inputted the data your report is immediately generated. This allows you to assess your herd’s physical performance and MOC within days of the month end. This timeliness then allows you to decide whether you are happy with efficiency and margin or whether changes are necessary for the following month.

Comparing through CAFRE Benchmarking

Benchmarking simply means comparing with others to establish where business improvements can be made. In the last year CAFRE have benchmarked over 480 dairy businesses. Benchmarking is much more detailed than DMOC and includes all variable and overhead costs associated with the dairy enterprise for the year as well as the physical performance of the enterprise. Those businesses who benchmark can view their figures for the current year, any previous years completed and the current average figures for all those benchmarked. Having access to this information in one report allows review of the years performance and identification of areas for improvement compared to previous performance and compared to others. Those with a current benchmarking report can quickly identify where their costs of production have increased or are higher than average and manage these areas in the coming period to reduce costs.

Planning through the use of cashflow projections

If you are a member of a Business Development Group your Dairying Adviser can help to develop a cashflow budget for the coming months. This will simply start with the current account position on day 1 and detail all planned income and outgoings over a defined period (usually 12 months). This type of budget can very quickly allow you to establish where cash pinch points appear throughout the period. The knowledge gained from this can be used to discuss with your finance provider or bank how best to get through those periods. The budget can also be used to show that although there may be cash negative points in the year that the business can climb out of these given time. Once your cashflow has been created it is simple to run the budget at various milk prices, meal prices, meal feed rates, etc which again can give you and your bank an idea of the resilience of your system.

Summary

1. If you record, measure and compare your business performance you can quickly identify where changes will have an impact on cashflow and profit.
2. Use CAFRE’s DMOC programme to quickly assess last months performance and get rolling annual averages for your herd.
3. Business Development Group members can make use of CAFRE Benchmarking to fully assess annual income, costs, profit and physical herd performance and to identify areas for improved efficiency and cost control.
4. If you are in a Business Development Group your Dairying Adviser is still working and can guide you through the use of any of the above products offered by CAFRE.

COVID-19 Update

Farmers are adopting new approaches in the face of the COVID-19 pandemic.
It is essential to follow the latest advice outlined on the Public Health Agency website, www.public health.hscni.net. The site is updated daily and provides practical advice and important information for you and your family in these very difficult, challenging times.