Is feeding those extra dairy cows really making you any more money?

“Many dairy farmers are eroding their profits for the pleasure of producing extra milk; ego farming is what I like to call it.”

This was a statement made by John Roche – managing director of Down to Earth Advice – who spoke at the Irish Grassland Association (IGA) Dairy Conference and also at the Positive Farmers conference this year.

At the events, he raised the topical issue of ‘marginal milk’ which spurred a lot of interesting conversations amongst farmers.

Since the abolishment of quotas, dairy production output has increased by 40%. This is partly due to the extra cow numbers, but it is also due to increased stocking rates and feeding additional supplementation.

What is marginal milk?

John described marginal milk as, “the additional milk you produce when you make a change to your farming system”.

For example, when you use supplementary feed – such as maize, concentrates or bought in silage – to increase stocking rate, thereby increasing your milk production output. This increase in milk production is ‘marginal milk’.

A more recent example, which many dairy farmers can relate to, was during the past summer drought when farmers across the country bought in tonnes of expensive extra feed to supplement their grass deficit.

It could be argued that this was completely necessary – which it was, but this milk was in fact ‘marginal milk’.

What is it costing me?

Source: John Roche

In the example above, base milk cost the farmer €3.33/kg of milk solids (MS).

In the first scenario, the changes he/she made to the farming system increased milk output by 7,650kg of MS, total costs by €42,000 and average costs by €0.32/kg of MS.

So, in reality, producing this extra milk was costing the farmer €5.49/kg of MS which would only be profitable if milk price was greater than this.

Similarly, in scenario two, when a different change was made to the farming system – such as feeding more concentrates – to produce this extra 7,650kg of MS; this increased total costs by a further €60,000.

The cost of producing this milk was €7.84/kg of MS – which is only profitable if milk price was greater than €7.84/kg of MS.

It’s not that each of these scenarios aren’t profitable – they are; once milk price is greater than €4.00/kg of MS (€0.33/L).

However, it is the cost of this expensive marginal milk (€5.49/kg of MS and €7.84/kg of MS) which is actually eroding some of the original profits for the pleasure of producing this extra milk.

Or, in other words, farmers are subsidising the production of marginal milk with the profit coming from the milk produced from pasture.

‘There is no such thing as a fixed cost, I like to call them mixed costs’

Although these extra cows bring added profit through greater milk and livestock sales; they also bring additional costs through increased operating expenses.

It’s not just variable costs that go up when you increase cows numbers; so called fixed costs also increase, John said.

When you are milking more cows, you’re harvesting more milk which means the parlour is running for longer and more milk has to be cooled. This means the electricity bill has to go up. Electricity is a fixed cost, although it goes up when you intensify.

John highlighted that for every €100 an Irish farmer spends on feed, their total costs go up by €153. This is due to the extra expenses incurred by these extra cows.

“And, if feed is costing you €250/t, it is really costing you €375 in total costs,” he added.

The message of John’s talk was clear. He said: “On average, marginal milk from supplements are more expensive than the milk price, and they are far more expensive than the base price.”

To prevent Irish farmers from falling into the trap of a high-input system; they need to understand the concept of marginal milk.