Is producing 'marginal milk' costing you money?
Marginal milk brings revenue, but it also brings additional costs and often these are costs are much greater than what most people consider in simplistic partial budgeting excercises, John Roche said, speaking at the recent Irish Grassland Association conference.
Marginal milk is the additional milk produced on a farm when the system of farming has changed, he explained to the audience.
1. If you fill a feed deficit with the supplementary feed, the extra production is ‘marginal milk’.
2. If you use supplementary feed to increase stocking rate, the extra production is ‘marginal milk’.
According to John, operating expenses increase with increasing use of supplementary feed. He said that a 10pc increase in the proportion of the cow’s diet as supplementary feed increases operating expenses by between €0.18 and €0.27/kg MS in Ireland.
He said that as long as the average milk solid price is less than the milk price, however, the business remains profitable and most people don’t consider what it cost them to produce the additional milk.
“Although the average cost of production is very important, by focusing only on average cost of production, you risk using at leat some of your profit to pay the privilege of producing more milk and reducing the business resilience t price shocks,” he said.
In the example, base milk cost the farmer €3.33/kg MS. In scenario 1, by importing feed the farmer increased average operating expenses by €0.32 and MS production increased by over 7,500kgs. In scenario 2, importing feed increased average operating expenses by €0.66 to €3.99/kg of MS. He said that both scenarios are profitable as long as the milk price is greater than €4/kg MS.
However, he said examining the cost of the marginal milk in these systems showed that the cost was €5.49/kg MS in scenario 1, and €7.84/kg MS in scenario 2, which meant that the the base milk was ‘subsidising’ the marginal milk.
“In reality, the additional milk produced would only be profitable in very high milk prices and that it’s actually costing farmers a lot of money to produce,” he said.
He also said that for every €100 and Irish farmer spends on feed, total expenses go up by €153. He said that it is important for farmers to take this into consideration when buying extra feed or planning to feed more meal.
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