Farm Ireland
Independent.ie

Monday 23 October 2017

Worrying rise in feed and fertiliser costs needs to be heeded by farmers

The cost of fertiliser is set to increase.
The cost of fertiliser is set to increase.

John Donworth

A number of you will have your profit monitor meeting before the month of January is out. It is a very useful exercise and better still if you have a number of years' data. Looking at trends over time can be very useful, but sobering exercise.

Existing profit monitors completed for 2013 show an alarming rise in costs. Indeed, go back five years to 2008 and look at the cost structure to produce a litre of milk on your farm and look again at the same data for 2013. Variable costs have taken a real hike and, in a number of cases, have taken the shine off what in effect turned out to be a very good year for dairy farming in 2013.

In December 2013, Teagasc ran an economic outlook conference in Dublin. At this conference, data from the National Farm Survey was presented and an estimate was made of 2013 costs.

As you can see from the graph (right), the total cost of producing the litre of milk in 2013 was 28c/l, and while this is an estimate, the actual figures for 2013 will not be any different.

At 28c/l, a cow producing 5,000 litres, will carry a cost burden of €1,400. The graph is also telling us that if we go back to 2003 the cost of producing a litre of milk was 18c. That's a rise of 10c over 10 years or, to put it another way, that's €500 for a 5,000-litre cow.

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So what cost areas were the real offenders for 2013? Feed costs went up 21pc, no doubt due to the severe fodder problems in the early part of 2013. The other big culprit was fertiliser and contractor charges. They were up 16pc.

Some of the increase in fertiliser and contractor charges can be explained by the fact that farmers had made up their minds that they were going to grow as much grass as possible in 2013 and harvest as much of it as possible. The last six months of 2013 were terrific months for grass growth. Grass growth really responded to the extra nitrogen applied with the result that by the year's end, there was a surplus of feed on dairy farms. That's a good asset to have.

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I don't expect the same money to be spent on fertilisers and contractors in 2014. Other cost areas, such as electricity and fuel, were down 1pc, as were labour costs.

The final outcome was that total costs were up 10pc on the 2012 figure. As mentioned, feed costs were up a massive 21pc. That puts feed costs in or around 8c/l, or €400 per cow for a 5,000-litre cow.

The constant rise in production costs is a worrying development and it seems that the two biggest culprits, feed and fertiliser, are always at the top of the list. However, in very good milk price years, dairy farmers seem to take the view that the milk price will pay for everything. That's a very simple way of approaching decision-making.

How much profit was left after the 28c was paid out? National Farm Survey data shows a net margin of just over 10c/l. That's €500 per cow for our 5,000-litre animal. That 10c was up 2.9c up on the 2012 figure. That's an increase of 36pc.

A profit figure of 10c/l is nothing to write home about and would not justify any expansion ambitions. Through the grapevine, I am hearing of total cost figures of 30c/l. If that's the case, then some bills have remained unpaid in 2013.

National Farm Survey data represents the industry standard. The figures are average figures and obviously if the figures were split into the top, middle and bottom one third, then they would tell a different story. The bottom one third of dairy farmers had an extremely difficult year in 2013. Where do you fit in?

Efficient operators who complete the profit monitor each year, will probably come in somewhere between 22-24c/l costs for 2013. Before you talk about expansion these are the figures you need to be hitting.

John Donworth is a Teagasc dairy specialist and regional manager for Kerry and Limerick.

Irish Independent