Dairy farmers face a tough year ahead because of the collapse in milk prices, down from 37c/l to a projected 25c/litre. This reflects what happened in 2009 when prices fell to 22.6c/l from 33.2c/l in 2008. These wide fluctuations in milk price will continue for the foreseeable future.
The question is: how can you, as a milk producer, best deal with such huge variations in milk price?
Grass to milk at low cost
There is a direct relationship between the percentage of grazed grass in the cow’s diet and milk production costs. You can see this clearly in Figure 1. The more grazed grass you can get into the cow, the lower will be your costs. This is not surprising given that a tonne of grazed grass dry matter is up to six times cheaper than a tonne of dry matter from concentrates.
You can get production costs down to well under 25c/l by managing your cows and pastures, so that at least 70% of the diet is grazed grass. In contrast, production costs increase to over 32c/l when grass declines to 50% of the diet. Table 1 is a rough guide to measuring whether you are in the GrassRich or the GrassPoor category.
Grass to cash at low risk
Basing your expansion plans on the high cost, the GrassPoor system is very high risk. You will suffer when milk prices are low – as they inevitably will be at times over the next 10 years.
If you combine the high-cost, GrassPoor system with bank borrowings, you are entering extremely dangerous waters. This is a toxic combination – high production costs and high debt. It could put you out of business when milk prices fall, or when a weather event increases production costs.
The safe GrassRich route ensures that you can expand – and stay in business irrespective of milk price fluctuations.
Where are you on this graph? And, which route are you taking – GrassRich or GrassPoor? We define the GrassRich route as having more than 70% grazed grass in the diet. In contrast, the GrassPoor route means decreasing the amount of grazed grass in the diet.
As a result, costs rise and you, your family and the farm business are in real danger when profit margins are reduced or wiped out.
Table 2 is an example of the way we look at it.
If your plan is to milk more cows, you will need more feed. You need to work out where this extra feed will come from. The cheapest feed by far is grazed grass – see Table 3.
So, the best way of providing the feed needed for more cows is to grow more grass – not to buy in expensive concentrates. If you combine this extra grass with higher utilisation and higher grass quality, you can really drive up milk production while keeping milk production costs down.
Moorepark estimates that the average hectare of dairy pasture produces nine tonnes of grass dry matter of which seven are utilised as grazing and silage. The potential is much higher. In fact, a number of farms measured by Michael O’Donovan of Moorepark have grown 18t last year.
So, you need to know how much you are growing and utilising. Commit yourself this year to grass measurement.
Once you have your figures, you can take management steps to lift grass growth, utilisation and grass quality.
The payoff is huge. As well as milking more cows by increasing stocking rate, you will make significantly higher profits. On the Moorepark figures, you will increase profit by €161/ha for every extra tonne of grass grown.
Table 4 shows how this works out for an average dairy farm of 50ha. By growing and utilising an extra 3.45t of grass/ha, a farmer with 50ha under cows will increase total farm profit by €27,500. The investments needed are mainly in soil fertility, possibly reseeding, grass measurement and management skill.
Skill before scale really pays off.
Increased grass production should be the main driver for dairy industry expansion. It is estimated that Ireland’s dairy pastures produce an average of nine tonnes dry matter per hectare, of which seven are utilised as grazed grass and silage. A realistic target would be 14t grown and 12t utilised.
Teagasc estimates that 700,000ha will be devoted to dairy cows by 2020. If a concerted effort is made to lift grass production and utilisation to the above targets, these 700,000ha will produce enough grass and silage to support a national dairy herd of 1.925 million cows.
National milk output would increase to over nine billion litres, well ahead of the Food Harvest 2020 target.
The key point to grasp here is that the near doubling in milk production is primarily a result of the increased tonnages of grass grown and utilised per hectare. It is not a result of simply increasing cow numbers and feeding them increased quantities of bought-in feed. The potential for grass-to-cash is phenomenal. And it is readily achievable.
Following the removal of the milk quota system on 1 April, Ireland possesses the potential over the next 20 years to develop a dairy industry that can greatly increase farm family income and rural prosperity, while contributing hugely to the recovery and growth of the national economy.
This potential is outlined below. But, to achieve it, we recommend that a dairy industry strategic planning group is set up.
Stakeholders
This group would include the major industry stakeholders and their job would be to ensure that Government policy, research and advisory effort supports an expansion policy that is based on growing and utilising more grass from Ireland’s pastures. In other words – stay focused on the GrassRich route. The potential of a resilient, flourishing, internationally competitive dairy industry:
Triple dairy export earnings to €9.15bn per annum – up from €3.045bn in 2013.Double the number of jobs in the dairy sector.Increase family farm incomes by €560m per annum.Inject €4.25bn per annum into the rural economy. Provide high-income dairy farming opportunities for young people and owners of drystock and tillage farms.Continue to grow despite price volatility, weather variations and other challenges.This article is based on a report that Con Hurley and Mike Murphy of the Positive Farmers have submitted to the 2025 Agri-Food Strategy Group. The report was funded by the Irish Farmers Journal. They have also made a presentation to the Joint Oireachtas Committee on Agriculture. The report can be seen online at www.farmersjournal.ie and also at www.
positivefarmers.ie
Dairy farmers face a tough year ahead because of the collapse in milk prices, down from 37c/l to a projected 25c/litre. This reflects what happened in 2009 when prices fell to 22.6c/l from 33.2c/l in 2008. These wide fluctuations in milk price will continue for the foreseeable future.
The question is: how can you, as a milk producer, best deal with such huge variations in milk price?
Grass to milk at low cost
There is a direct relationship between the percentage of grazed grass in the cow’s diet and milk production costs. You can see this clearly in Figure 1. The more grazed grass you can get into the cow, the lower will be your costs. This is not surprising given that a tonne of grazed grass dry matter is up to six times cheaper than a tonne of dry matter from concentrates.
You can get production costs down to well under 25c/l by managing your cows and pastures, so that at least 70% of the diet is grazed grass. In contrast, production costs increase to over 32c/l when grass declines to 50% of the diet. Table 1 is a rough guide to measuring whether you are in the GrassRich or the GrassPoor category.
Grass to cash at low risk
Basing your expansion plans on the high cost, the GrassPoor system is very high risk. You will suffer when milk prices are low – as they inevitably will be at times over the next 10 years.
If you combine the high-cost, GrassPoor system with bank borrowings, you are entering extremely dangerous waters. This is a toxic combination – high production costs and high debt. It could put you out of business when milk prices fall, or when a weather event increases production costs.
The safe GrassRich route ensures that you can expand – and stay in business irrespective of milk price fluctuations.
Where are you on this graph? And, which route are you taking – GrassRich or GrassPoor? We define the GrassRich route as having more than 70% grazed grass in the diet. In contrast, the GrassPoor route means decreasing the amount of grazed grass in the diet.
As a result, costs rise and you, your family and the farm business are in real danger when profit margins are reduced or wiped out.
Table 2 is an example of the way we look at it.
If your plan is to milk more cows, you will need more feed. You need to work out where this extra feed will come from. The cheapest feed by far is grazed grass – see Table 3.
So, the best way of providing the feed needed for more cows is to grow more grass – not to buy in expensive concentrates. If you combine this extra grass with higher utilisation and higher grass quality, you can really drive up milk production while keeping milk production costs down.
Moorepark estimates that the average hectare of dairy pasture produces nine tonnes of grass dry matter of which seven are utilised as grazing and silage. The potential is much higher. In fact, a number of farms measured by Michael O’Donovan of Moorepark have grown 18t last year.
So, you need to know how much you are growing and utilising. Commit yourself this year to grass measurement.
Once you have your figures, you can take management steps to lift grass growth, utilisation and grass quality.
The payoff is huge. As well as milking more cows by increasing stocking rate, you will make significantly higher profits. On the Moorepark figures, you will increase profit by €161/ha for every extra tonne of grass grown.
Table 4 shows how this works out for an average dairy farm of 50ha. By growing and utilising an extra 3.45t of grass/ha, a farmer with 50ha under cows will increase total farm profit by €27,500. The investments needed are mainly in soil fertility, possibly reseeding, grass measurement and management skill.
Skill before scale really pays off.
Increased grass production should be the main driver for dairy industry expansion. It is estimated that Ireland’s dairy pastures produce an average of nine tonnes dry matter per hectare, of which seven are utilised as grazed grass and silage. A realistic target would be 14t grown and 12t utilised.
Teagasc estimates that 700,000ha will be devoted to dairy cows by 2020. If a concerted effort is made to lift grass production and utilisation to the above targets, these 700,000ha will produce enough grass and silage to support a national dairy herd of 1.925 million cows.
National milk output would increase to over nine billion litres, well ahead of the Food Harvest 2020 target.
The key point to grasp here is that the near doubling in milk production is primarily a result of the increased tonnages of grass grown and utilised per hectare. It is not a result of simply increasing cow numbers and feeding them increased quantities of bought-in feed. The potential for grass-to-cash is phenomenal. And it is readily achievable.
Following the removal of the milk quota system on 1 April, Ireland possesses the potential over the next 20 years to develop a dairy industry that can greatly increase farm family income and rural prosperity, while contributing hugely to the recovery and growth of the national economy.
This potential is outlined below. But, to achieve it, we recommend that a dairy industry strategic planning group is set up.
Stakeholders
This group would include the major industry stakeholders and their job would be to ensure that Government policy, research and advisory effort supports an expansion policy that is based on growing and utilising more grass from Ireland’s pastures. In other words – stay focused on the GrassRich route. The potential of a resilient, flourishing, internationally competitive dairy industry:
Triple dairy export earnings to €9.15bn per annum – up from €3.045bn in 2013.Double the number of jobs in the dairy sector.Increase family farm incomes by €560m per annum.Inject €4.25bn per annum into the rural economy. Provide high-income dairy farming opportunities for young people and owners of drystock and tillage farms.Continue to grow despite price volatility, weather variations and other challenges.This article is based on a report that Con Hurley and Mike Murphy of the Positive Farmers have submitted to the 2025 Agri-Food Strategy Group. The report was funded by the Irish Farmers Journal. They have also made a presentation to the Joint Oireachtas Committee on Agriculture. The report can be seen online at www.farmersjournal.ie and also at www.
positivefarmers.ie
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