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Profitable Dairy Production

July 10, 2020

David Mackey, CAFRE Dairying Adviser

The effects of lockdown arising from the Covid-19 pandemic have effected everyone. Dairying Advisers at the College of Agriculture, Food and Rural Enterprise (CAFRE) have adapted by keeping in touch with BDG members by phone and online methods.  For dairy farmers the routine everyday work continues however lockdown led to an initial worry over milk prices and reduced financial returns.  This has prompted questions on the cost of producing a litre of milk and the relative merits of different production systems in a low milk price environment.

For each BDG meeting hosted online by David Mackey, CAFRE Dairying Adviser based in Magherafelt, farmers provide details of their current herd performance, with information on the number of cows being milked, daily bulk tank yield and level of meal feeding.  This enables average yield and milk from forage (MFF) to be calculated for each farm and by adding in current milk and meal prices (and details of milk quality to account for milk price bonuses) allows herds to be ranked on Margin Over Concentrate (MOC).

Results from CAFRE Dairy Benchmarking over the years have consistently shown a strong link between feed efficiency and profitability.  In 2018-19, herds in the top 25% ranked on net margin had average MFF production of 2,490 litres/cow/year compared to an MFF average of 1,890 litres and as low as 1,190 litres for herds in the bottom 25%.  Higher levels of MFF are achieved through a combination of better summer grazing management and efficient feeding through the winter by making good quality silage, batching cows into high and low yielding groups and effectively feeding to yield.

At three BDG meetings David held in mid to late May, discussion took place on the comparative performance of herds grazing fulltime, housed fulltime, or somewhere in between – the aim being to identify differences in MFF and MOC. Results are shown in Table 1.

Dairy Margin over concentrate table

Across the 41 herds analysed, those that were grazing full time had lower average milk yields, but this was due to the predominance of autumn-winter calving herds where cows were generally in mid to late lactation.  These herds had higher a higher MFF yield than those that were either partially or fully housed, producing some 15-16 litres from grazed grass on average.  On the other hand, herds that were fully housed only produced 6-8 litres of milk from forage which is typical of a silage based diet, with herds partially housed lying somewhere in between.  Butterfat % was generally lower in grazed herds due to the abundance of fresh lush spring grass with its lower fibre content.

Despite producing around 5 litres less, at £5.28/cow/day, the MOC of herds grazing full time was 25 pence/cow/day higher MOC than herds that were fully housed.  Herds that were partially housed had a similar MOC to grazing herds but produced some 3 litres more milk.

Dairy cattle

MOC gives some indication of the financial efficiency of production but CAFRE Benchmarking shows that MOC only accounts for two thirds of variable costs and one third of common production costs.  Therefore analysing MOC on a particular day is only showing part of the picture.  CAFRE forage costings estimate that grass for a 30 litre cow grazing full time costs some 84 pence/day, while good quality silage for a housed cow is estimated to cost £1.59/cow/day, and forage for a cow partially housed some £1.23/day.  Hence, the differences in margins highlighted in the table become wider when forage costs are considered.

Moving beyond concentrate and forage, other variable costs that include vet/med, breeding and dairy sundries cost £193/cow/year on average.  Common overhead costs are highly variable and take account of both machinery and property depreciation as well as contractor costs, machinery running costs, electricity, water/rates, insurance and professional fees. Benchmarking results from 2018-19 showed that these averaged £494/cow/year before consideration of labour and conacre, but where herds are housed all year round are generally higher than those put to grass in summer due to a higher dependence on machinery.  Replacements costs average £214/cow/year and again tend to be higher where cows are housed all year round.

Dairy farmers should ask themselves, what type of production system do you have, how did your average May yield compare with the table and what margin would you be left with after consideration of concentre, forage, replacements and other variable and overhead costs?  Your monthly MOC can be monitored using the MOC tool in the Benchmarking section of the DAERA Online Services website where you can compare the performance of your herd to that of others.  For guidance and assistance to get started on MOC or Benchmarking, please speak to your local CAFRE Dairying Development Adviser.