Monday, 10 August 2015

Cutting Costs

So here it is. A simple graph illustrating milk price volatility in the last ten years. Dairy farmers worldwide will be acutely aware of where we are today. Everyone has a slightly different story of how we've ended up in this mess, from the Russian ban on EU imports, to Chinese over purchasing. I'm not going to wade in on the causalities, only to say they are many, complex and often interlinked. Instead I've chosen to focus on what I can control: my own cost of production.

The biggest advantage of a seasonal calving, grass based system, is the low cost per KG of milk which can be achieved. With grazed grass the cheapest feed available, matching cow demand to grass growth helps to not only insulate us from the volatility of purchased feed costs, but also to avoid the "hidden" costs of wastage, substitution and depreciation. From these core values of grass utilisation and production costs, I sat down today and wrote out the key areas in which I could cut costs next season.

Are you carrying surplus animals?

  • Carry fewer surplus animals. This is probably the single biggest place I can save money. Scan cows early and cull/sell anything you don't intend to milk next season. Wintering is a big costs for an animal that you won't milk the next season. We would usually keep some late calvers and sell to them into the UK, year round calving, market. Unfortunately I don't think there will be a big market for these animals in a low milk price year.
  • Use Stock Bulls on our bulling heifers. Despite our success with AI over the past two seasons, it is still a cost which can be saved from our cash flows. Any herd expansion plans will be put on hold in light of the milk price, so the cost of fewer AI bred replacements can be mitigated. This leads on to my second point...
  • Less intervention in the main herd. For the past three seasons we have used CIDRs on all +42 day calved cows, which haven't cycled premating. Despite averaging a respectable 56% conception, the numbers we have to treat have fallen as the herd quality has improved. With a surplus of R1s, it is now time to "mine" this core fertility and trust we will get enough replacements without the 5-7% CIDR cows.
  • Delay repairs and cut capital expenditure. In any other year I'd love to upgrade some of our tracks and purchase a better handling facility for our youngstock. But these will have to wait. We have invested a lot in recent years, upgrading everything from the parlour to water system. Now it's time to put the chequebook away and focus on making the most out of what we have.
  • Reduce regrassing. Typically we would look to reseed 10% of the milking platform a year. However this could be reduced to 5% or less for the coming season. Apart from the immediate savings in seed and contracting, it would also act as insurance against inclement weather which would otherwise force us to purchase more feed.
Hopefully these suggestions have given you all some food for thought about your own on farm costs. Exceptionally low milk prices will call for a degree of short termism, which may not sit comfortably with our long term goals. But when the battle is right in front of us, the real victory will be if we're still around to farm the year after! 

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