This time last year, the Kilkenny budget predicted that the farm would lose in the order of €20,000 during 2015, after all costs were paid.

However, a good grass-growing year and better than expected milk price have helped return a cash profit of €48,884. Gross output for the farm came in at €620,828 almost €90,000 ahead of the budget set in January 2015.

In 2015, the Glanbia base price achieved was close to 26c/litre for milk at 3.3% protein and 3.6% fat. However, the actual price received by the farm was 35.1 c/litre.

The extra money came because of two main factors: (1) the extra milk solids – the herd delivered 3.86% protein and 4.64% fat, and (2) the fact that about 23% of the farm supply is tied into a fixed milk price scheme, with the price fixed north of 30c/litre.

Total costs came in at €551,144, more or less what was budgeted during 2015. A breakdown of the main fixed and variable costs can be seen in the graphs on the right.

Dairy cow feed, one of the big variable costs, came in well under budget, at €15,373 in total. Last year, 180kg of meal was fed per cow, and no silage was purchased given grass supply was so good.

Plan for 2016

The budget for 2016 is not looking as healthy. The tally suggests the farm should bring in about €575,000 in output but that cash costs will be in the order of €584,000, so the farm is budgeted to lose about €9,000.

Much will depend on what grass the farm can grow. Last year, the farm grew 13.6tDM/ha. If that performance could be repeated, then you could see a €50,000 swing into the positive.

Milk price has been pared back, in expectation of lower milk prices in the first half of 2016. This year, for budgetary purposes, the price is set at 24c/litre, at 3.3% protein and 3.6% fat.

The budget allows for 450kg of meal per cow and to purchase some silage. These costs might not be incurred if grass growth is good.

This farm is unusual relative to other Glanbia suppliers in that it does not get the shareholder top-ups other Glanbia suppliers get if they are shareholders.

Effectively not getting the top-up saw the farm lose out on 1.6c/litre plus VAT in 2015, which for the Kilkenny farm, given the supply profile, would have amounted to €23,700 in milk sales.

The farm has about 20% of the annual supply in two of the fixed milk price schemes, which would have boosted returns in 2015, returning some of the losses to being part of the scheme in 2014.

So 2015 milk output ending up at 35.1c/litre (€4.01/kg MS) is not a bad result and testament to good milk quality and solids boosting a relatively low base price.

Wathc the latest update from the farm in the video below:

Six-year performance

After the six years of milk production, it is safe to say that if the Greenfield dairy farm in Kilkenny was shut down in the morning it would clear all debt.

This would mean all cows were sold, all loans would be repaid, all costs would be covered and the business would make enough for all shareholders to receive any outstanding dividends.

As I write this week, there is €125,000 in a deposit account (the slush fund), €114,000 in the current account, about €40,000 outstanding to creditors and long-term debt of €608,000 remaining.

Dividends have been accrued for the shareholders, who put up the money to start the business, to the tune of €168,000.

So if the business was to close and all stock were sold after six full years, all the long- and short-term debt could be repaid.

Of course, this is not going to happen and the project will continue, to complete the 15-year tenancy arrangement and hopefully start to generate profit for the business and shareholders.

Better milk solids prove biggest driver

In January 2015, the milk price outlook was bleak, but currency and stronger-than-expected markets helped returns. The Kilkenny farm saw a benefit in 2015 of being part of a fixed milk price scheme.

On the other hand, the farm hasn’t received any shareholder top-ups, as the entity has no shares in the milk processor and rules prohibit the purchase of shares.

However, by far and away the single biggest driver of output has been better milk solids. By feeding less meal and more grass, using the right genetics, the fat and protein delivered has increased for the last three years as the herd settles down.

Fat percentage has lifted from 4.48% in 2013 and 4.67% in 2014, to 4.64% in 2015. Protein percentage has lifted from 3.64% in 2013, to 3.69% in 2014, up to 3.86% in 2015.

These are very significant gains and show the premium available for high milk solids. In June 2015, about 60% of the herd would have been classified as Jersey crossbreds. Over the same period, the culling rate has dropped from 30% in 2013 to 17% last year, while cow mortality remained at between 1% and 2% over the three years.

KEY POINTS

  • Greenfield Farm made almost €50,000 free cash in 2015.
  • The budget for 2016 shows the farm is set to make a loss if current milk prices and planned inputs are realised.
  • Improving milk solids are driving higher output, while good grass, good fertility and low culling rates are helping on the cost side of the business.