What is the biggest financial driver on a dairy farm? Is it net profit per hectare or return on capital? This year’s IGA summer dairy tour is visiting farms that are excelling at both.

Conor and Josie Kelleher are milking 147 cows on a 57ha free-draining farm at Aherla in Co Cork. The overall stocking rate is 2.8 livestock units per hectare and the mostly crossbred herd sold 513kg of milk solids per cow in 2017.

Over 90% of the farm is at index three for phosphorus and potash and on target for lime. Conor is top-class at grass, growing 16.3t/ha in 2017, up from 10t/ha in 2013. This has allowed cow numbers to increase. Only enough replacements that are needed are kept on the farm.

To replenish silage reserves, Conor bought 15 acres of grass earlier this year for first cut and will harvest nine acres of wholecrop wheat in the coming days.

The IGA has taken the lead in reporting whole farm financial performance. Unlike profit monitor, this puts a cost on own and family labour and adds up all the income and expenditure needed to run the farm.

On a per-hectare basis, the Kellehers made a net profit of €3,668 in 2017, well above the Moorepark target of €2,489/ha.

But milk price last year was higher than the 30c/l base price in the Moorepark target. Adjusted for milk price and own labour, the Kelleher net profit per hectare drops to €2,128. The main difference between the two figures is that the Moorepark target doesn’t include a charge for land rent and assumes that all land is used for milking cows, whereas some of Conor’s outside blocks are used for rearing heifers.

Shinagh

The next farm being visited is the Shinagh Dairy Farm. Owned by Shinagh Estates (a subsidiary of the west Cork co-ops), the farm is managed by Kevin Ahern. Kevin is the only full-time employee on the farm and they are milking 244 cows. The land is all in one block and Kevin makes use of contractors, relief milkers and students to manage the workload.

The farm grew 7t/ha of grass last year and the herd sold 389kg of milk solids per cow. The farm is stocked at 2.95 cows/ha and about 60 acres of first-cut silage is bought in each year, equivalent to about 20% of the winter feed requirement.

Because all of the land being farmed by the company is leased, the net profit figures for the Shinagh farm are lower than that of Conor Kelleher’s. Last year, the farm made a net profit per hectare of over €1,900/ha.

After being adjusted for milk price this drops to €1,179, which is a good bit lower than the Moorepark target of €2,489/ha. In the case of Shinagh, all the land is leased and nearly all the stock are milking cows. However, milk solids out is lower and variable costs are higher than the Moorepark target.

ROI

While the Kellehers have a higher net profit than Shinagh, when looked at on a return on capital or asset basis, the results flip.

Valuing Conor’s farm at €40,000/ha including land, stock and buildings, and adding back interest and single farm payment to net profit, his return on asset in 2017 is 6.9%.

Over in Shinagh, the return on asset is nearly double at 12.1%. This is because the amount of capital invested is a lot less at €820,000 compared to over €2.3m in the Kelleher farm.

So, what’s better: net profit or return on asset? The summer tour is on Tuesday 24 July. Booking through the IGA is essential.