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High prices cushion dairy start-up costs

Ireland's newest dairy farmers may have underestimated the challenge of managing a start-up dairy, but rising milk prices have buoyed up their profit margins.

Analysis of the 2012 dairy profit monitors completed by new dairy entrants has revealed that while their milk yield and milk solids per cow fell short of expectations, higher milk prices almost doubled their expected profit per litre last year.

Teagasc researcher Robert McDonald found that while young dairy farmers had forecast an average milk yield of 5,107l/cow and milk solids of 381kg/cow, the actual 2012 figures for new entrants showed milk yield at 4,829l/cow and milk solids at 369kg/cow.

Nonetheless, the new entrants achieved a profit of 9c/l last year, well above their average profit forecast of 5c/l. The boost to profitability was due to milk prices racing ahead of the 27c/l price included in the farmers' projections.

Speaking at the New Dairy Entrants' Workshop in Teagasc Moorepark on Thursday, Mr McDonald said the majority of the 286 new dairy farmers who received 200,000l of milk quota from the Department of Agriculture's new entrant scheme were former beef farmers located in the south of the country.

With an average age of 36, the new dairy producers had an average farm size of 58ha.

There was a massive range in these farmers' development plans, with capital borrowings ranging from €88,000 to €165,000, and total expenditure from €188,000 to €681,000.

Most of the 286 new dairy farmers have begun milking and run average herds of 76 cows, stocked at 1.8LU/ha. Expansion in the post-quota era is top of their agenda, with some farmers intending to increase herd size to 350 cows.

Baltinglass farmer John Kelly outlined his experience of starting out in dairying to delegates. The Wicklow man farms 145ac and 680 ewes and said that higher gross margins in dairy production had convinced him to switch to dairy.

Married with four young children, John and his wife were also keen to create a business that could provide for the family into the future. He decided to maintain his sheep flock, convert the farm buildings to include a milking parlour and bought in 60 in-calf heifers from a single source.

"Cash flow has been the biggest stress for me, nearly everything costs more than you budgeted for," he said. "There is a temptation there to keep borrowing to a minimum but you can leave yourself short."

Mr Kelly said he had no target in terms of cow numbers but his goal for the future was to run a profitable dairy herd to provide for his family, not expanding for the sake of expanding.

Irish Independent