Milk prices have hit new heights but so have input costs, so insulating your farm and building a rainy-day fund is important.
Earlier this week, Ifac, Aurivo and Teagasc hosted a farm walk on the dairy farm of Henry and Enda Walsh in Oranmore, Co. Galway.
The walk focused on improving farm efficiencies during a period of soaring input costs, inflation and difficulties finding the right employees.
Farm efficiencies
Michael Dunphy from Ifac told the attendees that as input costs have increased, farmers need to be really mindful.
Using the Walsh farm as an example, Michael explained that: “In 2021, cost of production for this farm was 28c/L while the projection for this year is 40c/L, which is a 30-40% increase on the cost of production for this farm.
“Over the next few months we will see quite strong milk cheques, but we also have to look at the volume of cost throughout the year.
“We really need to focus on the cashflow for the year and levels of merchant credit.
“There should be some surplus cash towards the end of the year, but we really need to focus on what we will use that cash for.”
Michael told the group that infrastructure investments need to be carefully considered this year.
He also highlighted that improved levels of milk solids sold from a farm is where surplus cash can be generated.
He outlined that a herd selling 500kg of milk solids, compared to a herd selling 400kg of milk solids, has an increased income per cow of €600.
Over a 100-cow herd that is €60,000 extra/year, which Michael stated could pay back up to €800,000 of a loan over a 15-year period, roughly.
Rainy-day fund
Giving some insight into their farm’s situation, Henry said: “We have always been reasonably disciplined in terms of cost-control.
“We have always looked for ways to achieve output without incurring direct costs, particularly in the form of concentrates.
“For years we were very adverse to capital expenditure, until the time came when it became unsustainable and the workload became too much.”
Continuing, Henry said: “Ultimately, our driver here is days in-milk and we are definitely looking to improve the herd’s economic breeding index (EBI).
“We are perusing milk solids through percentages rather than milk volume. But even with that, it is with an eye on cost – we are not just going after a 500kg of milk solids/cow target.
“Spending a lot of extra money on concentrates or different methods of improving milk solids is not something we will be interested in.”
Commenting on the increased cost associated with milk production in 2022 and the building of a contingency fund, Henry said: “I think this year we need to be very careful; a lot of dairy farmers had a little bit of a buffer left over from 2021.
“But we are now in a situation where milk price is increasing significantly.
“I think it is terribly important that we create a mentality of building a rainy-day fund on farms, because I believe the real hit will be in 2023.
“Historically, we have struggled to get more than a year of peak milk prices, but you could spend three years at the bottom.
“I think we are in a very vulnerable point, were we could get a little bit relaxed, a little bit obamiste with regards the future of milk.
“But I think we are in a very dangerous place, where if at all possible we should look a building a significant buffer funds on farms.
“We are not going after any extra productivity based on milk price, this year. We are just going to try and use the grass the best we can and keep our concentrate feeding under control.”