Farm Ireland

Tuesday 24 April 2018

Focus energy on profit rises

John Donworth

As of last Thursday a total of 400 Dairy Profit Monitors from spring milk producers were processed by Teagasc.

Was yours one of the 400? Hopefully it was, but the bulk of them were from discussion group members.

Last year's figures do not make for pretty reading. I know they will not cheer you up, but the story they tell is just as important as the story they told when milk was 35c/l.

Several times over the years in these articles I have mentioned that dairy farming is a business -- just like any other business. The bottom line is the cows must generate profit and surplus cash. Last year was a tough year to be in the business in Ireland. A large number of them failed and the evidence is there for all to see when the business does not open on a Monday morning. It's a very black and white issue.

The dairy farming business isn't black and white. The farm may not be generating surplus cash, but it doesn't close down on a Friday and not open again.

A dairy business that is not generating cash can be the equivalent to a slow death, bleeding the owner dry over time. It becomes a vicious circle, inefficiencies creep in, motivation goes and, when that happens, you are better out of the industry.

The bottom line is dairy farming is a business. In that business you only have control of two areas: the first of these is the output from the farm (litres of milk sold) and the second is the cost of the inputs. You have control over very little else. Certainly, you have very little control over the price of a gallon of milk.

There is very little reward in time spent trying to alter things that are happening outside the farm gate. That is why it is so important to be really on top of what is happening inside the farm gate.

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So, what are the costs of the inputs on your farm? Are they similar to the average figures from the 400 spring calving dairy farmers (see tables below)?

What do you make of the figures? Variable costs have been rising steadily over the past few years and last year they amounted to 9.66c/l. The biggest variable is the cost of ration. At 2.90c/l, it accounts for 30pc. On wet farms last year, the figure for ration was close to 4c/l.

Fixed costs amount to 8.80c/l, with depreciation being the biggest cost here. Total costs (both fixed and variable) on average for the 400 profit monitors came to 18.46c/l. Taking the total costs from the gross output of 23.89c/l gives a net profit of 5.43c/l, or 24.7c/ga.

The average yield of the cows in the sample was 4,880 litres (1,073ga). At a profit level of 5.43c/l the profit/cow is €265. I have excluded REPS and Disadvantaged Area money from the table. Both of these amount to another 1.06c/l. These payments will arrive whether you are milking cows or not.


Average cow numbers in the sample is 103, with stocking rate on the milking block of 2.30Lu/ha. Average milk solids produced for each cow is 370kg. At 2.30Lu/ha, the total milk solids produced on each hectare is 850kg.

The figures produced don't make for great reading. But that doesn't mean we should hide from them. Variable costs have been rising steadily over the past two to three years. Wet weather, high fertiliser costs, high meal costs and high diesel outgoings have all impacted on profit.

The fixed costs are also a problem, but on the average farm they are not out of control. It is very difficult to do anything about high fixed costs. They are embedded in the business and are a real problem.

You will also find in the tables what the top 10pc of the 400 farmers achieved in cost control and net profit last year. That's where you should be setting your target for this year.

Irish Independent