The cost of production on dairy farms has significantly increased in 2022, with record high prices for input costs.
In one sense, dairy farmers have been quite lucky that milk prices are good.
May milk prices in 2021 ranged from 36-34.32c/L, according to Agriland and the Irish Creamery Milk Suppliers Association’s (ICMSA’s) Milk Price Tracker.
Whereas in May of this year, prices ranged from 52.50-46.58c/L
This means that in May 2022, compared to the same period in 2021, farmers were receiving 16.5-12.26c/L more for milk.
Based on the highest prices in May 2021 and May 2022, this is a 45.83% increase in milk price.
However, it is likely that this increase in base milk price is needed to allow dairy farmers to have a margin in 2022.
Production costs on many farms are now higher than milk prices being paid to many farmers in 2021.
Cost of production
Based on Teagasc figures, the cost of keeping a cow is €2,069 in 2022, which equates to a cost of production of 34c/L for a 6,000L cow.
€2,069 ÷ 6,000L cow = 0.34c/L
In 2020, the cost of keeping a cow was €1,478, which equates to a cost of production of 24c/L/cow.
This means that the cost of production/cow in 2022 is 10c/L higher than 2020.
There are a number of variables of course, with some farms having higher levels of debt or higher labour costs.
But a cost of production of on average of 34c/L is significantly ahead of milk prices that were paid for a large part of 2021, which means that the cost of production on farms has increased by 40%, but milk price has increased by 45.83%.
Milk prices
With these costs it is very important to look inside the farmgate and determine if there are any areas that can be improved.
Can you make any changes that will be positive from a cost point of view, but not impact on production from cows?
Farmers cannot rely on milk prices remaining high to maintain margins on dairy farmers.
The cost of feed is most likely the highest cost on farms, which includes concentrates and growing grass.
Ideally, farmers should look at growing more grass from less chemical nitrogen and milking a cow that requires less concentrates to both milk and maintain condition.