Feed costs take their toll on year two gross margins
In the second week of the Farm Profit Programme results, we take a closer look at the Biffen family, Arnage farms, Ellon, and the Duguid family, North Cranna, Aberchirder.

The Biffen family

Arnage farm, Ellon, Aberdeenshire

Farm size: 227ha

Spring cows: 121

Ewes: 209

The second year of the programme was definitely a challenge, both weather-wise and financially.

Overall, it saw our gross margin fall £181/cow compared with the previous year, and down £106/cow on the benchmark year.

While this is disappointing, we are confident it is a minor blip, as we are very much playing the long game here at Arnage.

On the sheep side, gross margin was up £11/ewe on the year, despite an extremely difficult lambing period.

Cattle

From the start of the project, calving spread was always the number one objective for us.

We wanted to move from calving most months of the year to a tight, 12-week, spring-calving herd. This was never going to happen overnight.

The initial plan we discussed with the farm advisers was to create two herds, a large spring herd and a smaller autumn herd.

While we did not want an autumn-calving herd, this was to avoid a large numbers of culls/carryover cows in one year.

The autumn herd would then be phased out over a number of years as cows came to the end of their productive lives, with all replacement heifers joining the spring herd.

However, when it came to it we decided not to put the bulls in with what would have been the autumn herd, as we felt we didn’t need the distraction of two herds on the farm.

This has meant taking a financial hit this year, as we’ve had more culls and we held over a number of younger cows that calved in autumn to join the spring herd this year.

This has seen us tighten the calving spread to just 15 weeks last year. This should be reduced to 13 weeks this coming spring.

The new system has made management much easier, especially in terms of winter diets, as there are just three groups of cattle on-farm now – dry cows, growing stock and culls.

While we calved 10 fewer cows in 2018 compared with 2017, we have managed to wean two more calves.

This is reflected in the rearing percentage increasing from 79% in 2016 to 88% last year. This means cows are now working for us – no more passengers.

The poor weather in late 2017 meant we started feeding silage in mid September, which was followed by the late spring of 2018 – so there was an increase of £110/cow of purchased feed.

This winter has been much kinder and we are confident we will see gross margin bounce back again next year.

Sheep

Up £11/ewe on last year, we are confident the sheep are on the right track.

We are in the process of changing ewe type from Suffolk-cross to Mules, as we look for a more suitable sheep for an outdoor lambing system.

We were affected by the weather last year at lambing time, which saw us lose more lambs than we would like. To combat this we are lambing a fortnight later this year.

We need to get closer to the target of 1.5 lambs/ewe to the tup this year. Output from the flock is simply not high enough to achieve a decent gross margin/ewe.

Last year we tried rotational grazing with the ewes and lambs, and we were impressed with how well it went.

If it wasn’t for the drought we would have had the majority of lambs away off the grass.

This year we will increase the number of paddocks from four to eight per group, to give us more flexibility throughout the season and ease grass management.

The Duguid family, North Cranna, Aberchirder, Aberdeenshire.

The Duguid family

North Cranna, Aberchirder

Farm size: 164ha

Spring cows: 83

Autumn cows: 71

Ewes: 303

Spring cows have slipped back to £186/head and our autumn herd has fallen to £380/head, as detailed in Table 3.

This is a drop of £128/head from the baseline year and £204/head from last year.

The autumn cows are still ahead of the baseline year by £87, but have fallen by £23 from last year’s result. While this is disappointing, reflecting on the year that we had, the results are not overly surprising.

As can also be seen from Table 3, output and rearing rates saw significant improvements over the initial baseline year.

We have worked hard at culling out unproductive cows and tightening the calving pattern. This has led to us having more calves to sell per cow. Hence the increase in output per cow.

However, while our output is at the highest it has been, the cost base from the 2017/2018 season has really punished us. Our feed and bedding costs for both herds were far higher than they had been previously, especially in the spring herd.

It cost us a lot in barley and straw through the tail end of 2017, with poor weather conditions dictating the bills.

When this is coupled with the late spring and dry summer, our costs were far beyond the normal rates.

Within these costs is also the straw that some of the spring cows were fed. The way the gross margin is calculated, the straw has been valued into the cattle at market cost plus the baling.

However, the way the silage cost is calculated, only the fertiliser and reseed costs are accounted for. The machinery, fuel and contract costs all exist in the fixed costs and are not explored in the gross margin.

This does make the gross margin look poorer versus the previous year, when all of the cows were on the straw and silage diet.

It also does not take into account the reduction in silage requirements, meaning that grassland is freed up to either be grazed or turned over to cropping.

Looking forward, we have already taken several measures to improve on the above situation.

Winter 2018/2019 has been a different season altogether and coupling that with around half of the spring herd on forage crops up until the turn of the year, we expect to see a very different cost base for 2019 benchmarking.

Sheep

The sheep have fallen back on both the baseline year and last year. The first point to note is the difference in lamb sales per ewe.

With a drop of £8 in the average price of lambs sold between 2017 and 2018, this amounted to a drop of just over £12 per ewe year-on-year.

Coupling this with a slightly lower weaning rate brings us to a reduction of £16 in lambs sold/ewe.

Feed and bedding costs are more than double the amount of the previous two years.

The other major rise in the costs is the vet and medicine and the other livestock expenses (OLE). However, this is actually a more accurate allocation of the costs.

In the previous years we were taking the total for each of these entries from the farm accounts and dividing them based on the output of the cattle and sheep enterprises.

With more accurate record keeping, we have managed to split out the vast majority of the costs into cattle and sheep, meaning that we have more accurate numbers being used for these costs.

Price cuts and oversupply hit milk sector
Graham’s The Family Dairy was with a 10% increase in milk supply; and First Milk cut price paid in June.

Falling prices and increased volumes are challenging the dairy sector. First Milk has cut its price to producers due to “downward pressure on dairy markets”, and UK production has been hitting a 20-year high every month this year. Meanwhile, Graham’s The Family Dairy has struggled to cope.

“Our milk production was up by 10% this year, compared with last year. This is a real challenge for us as an independent family dairy business, as milk volumes must be in line with our customers’ needs,” said Robert Graham, managing director.

“We are having positive conversations with our dairy partners and colleagues to address these ongoing challenges, working together on the best way to understand what the milk supply needs to be, and deliver on it.”

As processing capacity is outstripped by supply, excess milk will be put on the market, having a downward effect on prices. Average UK price is 29p/l, slightly above the five-year average of 27.5p/l.

The UK milk future projections are also indicating an encouraging upward trend

First Milk has announced that its price will reduce by 0.3p/l from 1 June to 27.45p/l for liquid milk and 28.37p/l for manufacturing milk.

Jim Baird, First Milk vice-chair and farmer director, said: “Unfortunately, we now need to make this adjustment in light of the downward pressure on UK dairy markets. Looking forward, global dairy markets are looking more positive and, with peak largely behind us, the UK milk future projections are also indicating an encouraging upward trend.”

Market for dairy calves

Finding a market for male dairy calves was the subject of conversation at the Exiles dairy discussion group meeting in Dumfries last Tuesday.

Up until now, the only real market for these low beef-merit Holstein Friesian and Jersey-cross calves was for pet food production

The discussion group – primarily made up of spring-calving, grass-based dairy farmers in southwest Scotland and northwest England, are trying to find alternatives to slaughter for male dairy-bred calves.

Up until now, the only real market for these low beef-merit Holstein Friesian and Jersey-cross calves was for pet food production. But milk buyers, responding to concerns from the public, are beginning to enforce rules around minimum age for slaughter.

The dairy farmers say that finding an alternative market for these calves is difficult and that an industry-wide initiative needs to be put in place to reduce the number of low beef-merit calves, but also to find a market for beef calves from the dairy herd.

One farmer said it cost him £12/head to transport three-week-old Hereford-cross calves from his dairy herd near Dumfries to a market at Carlisle, only for the calves to make an average of £28 in the ring – below the cost of feed and transport.

Scottish beef and lamb markets experience a dip in price
Farmers Journal Scotland editor John Sleigh has his take on the week's lamb and beef sectors.

Cattle prices slipped a little this week as abattoirs took advantage of decent supply, with prices paid closer to £3.60/kg compared with £3.65/kg last week for an R4L steer.

The official AHDB reported price dropped 1p/kg to £3.67/kg for an R4L steer.

This maintained a premium over the northern English price of 9p/kg for the same grade cattle.

Heifers are reported by the AHDB as a good trade at £3.70/kg for an R4L.

Deadweight cow prices rose 5p/kg to £2.73/kg for an O-4L carcase, which is 8p/kg more than northern England.

Lamb market

The live market for lambs tumbled by 19p/kg to £1.88/kg for medium-weight lambs.

Heavier lambs also fell by 18p/kg to £1.76/kg live weight.

Numbers of old-season lambs sold through the live ring fell back again as the season is drawing to a close, with 1,300 fewer lambs sold, with 8,941 head through the live ring.

Meanwhile, 5,211 store lambs were sold through Scottish marts, with a big sale at United Auctions.

The AHDB is reporting a UK price of £5.04/kg for an R3L carcase, with a kill of over 16,000, which is up 7,000/head.

Numbers of new-season lambs sold through the live ring rose again by 700 head to 1,565 lambs.

Ayr, Lanark, St Boswells, UA Stirling and Thainstone marts sold over 100 new lambs each.

The average price for medium-weight lambs was £2.28/kg liveweight. Cast ewes through the ring fell nearly 1,000 head on the week to 2,668 head, as the average price dropped £5/head to £63/head.

Beef wobble worry
Farmers Journal Scotland editor John Sleigh has his take on the week's big news.

It’s worrying that a few abattoirs cut their beef price this week to just over £3.60/kg for an R4L steer. It would seem increased beef supply and weak consumption are allowing processors to claw the price back a couple pence.

Retail sales have been struggling, sliding by around 4% on the year

After a sharp fall in supply from mid-March to April, we have seen a recovery in the last three weeks. While our beef kill is unchanged on the year, when you factor in a higher average carcase weight there is 0.6% more volume on the market.

Meanwhile, retail sales have been struggling, sliding by around 4% on the year, with roasts taking a significant hit.

The good news is the current supply peak usually finishes just after the Highland Show, and barbecue season should kick in soon, helping to increase consumer demand.

No cars at future shows

Having no cars at the Highland Show was one of the recommendations by a transport expert to chief executive officer Alan Laidlaw.

Alan found it hard to imagine how thousands of farmers could descend on Ingliston without using motor vehicles.

But future planners are serious about the combustion engine’s demise, and felt that not much parking will be needed for the double centenary year in 2040.

If this comes to bare, then we better widen doors on the trains from Mallaig if we want a Highland cattle class.