Australian-based dairy farm business consultant David Beca took farmers through the different on-farm performance metrics that correlate with profit at the Teagasc dairy conference.

Using data from grass-based milk production systems in Australia, New Zealand, South Africa and Ireland, Beca argued that pasture harvested and the percentage of pasture in the cows’ diet are the two most important metrics for Irish dairy farmers.

He said that as the amount of pasture harvested per farm increases, profit as measured by return on capital also increases, and the cost of production decreases.

He outlined how when pasture harvested increases, the cost per hectare of that pasture in tonnes of dry matter decreases, supplement cost per litre decreases, labour cost per cow decreases, total feed costs per cow decreases and overall cost per cow decreases.

Importantly, Beca said that in his definition, pasture harvested includes all pasture or other feeds grazed in-situ by cows or silage harvested from the grazing platform.

It excludes any silage or other feeds brought in and fed out mechanically to cows, such as silage or zero-grazed grass from an outside block.

So, the lesson from the first part of David’s talk was very much to focus on increasing pasture harvested as a means of increasing profit.

Increasing stocking rate is often seen as a means of increasing pasture harvested and in David’s presentation, it was found to be closely correlated with increased pasture harvest.

However, for farmers considering increasing stocking rate to increase pasture harvested and, ultimately, profitability, the second part of David’s presentation dispelled that idea.

David’s work clearly shows that as the amount of pasture in the cows’ diet decreases and is replaced by meal or silage, the level of profitability decreases and the cost of production increases.

There is a strong correlation between the percentage of pasture in the diet decreasing and supplement costs – total feed costs, cost per tonne of dry matter pasture harvested, pasture cost per tonne dry matter, total costs per cow and labour costs per cow – all increasing.

The risk here is that if stocking rate increases over and above what the land can support, then brought in feed costs will erode the benefits of the increased pasture harvested as a result of the higher stocking rates.

David said the impact of this was sharper in Ireland compared to in Australia because concentrate feed costs are much higher in Ireland compared to in Australia and the cost of growing grass is much lower in Ireland.

Milk yields low profit

Interestingly, David said that milk yield per cow has a very low correlation with profitability and is not something farmers should be focusing on.

“Most farmers are limited by land and what that land can grow. Farmers need to consider that pasture is the product and milk is the by-product of that pasture – so, focus on pasture to improve profit.

“Most farmers are not intuitively knowledgeable on how to make money, because the more concentrate you feed to a dairy cow, the more biologically efficient she becomes and the more likely it is that you’ll make less money as a result.

“Dairy cows are one of the most challenging animals on the planet to manage in that regard,” he said.

Summing up, David said farmers should look at their whole farm business to analyse options to improve profitability.

He said farmers should understand which metrics correlate with profit and to focus on these, always focusing on pasture harvested as the primary driver of profit, and the percentage of pasture in the cows’ diet as the primary driver of cost of production.

He said that in many ways, keeping the cost of production low is as important as profitability, because a low-cost business can handle bad weather and bad prices.

This, he says, is the hallmark of a sustainable and resilient business.

He cautioned farmers against going down a high-cost and low-profit path, and said farmers who have gone down this road should hope that they have continued to breed a cow that can tolerate a grazing system, as it takes at least 10 years to breed that into a herd.

Irish costs

Head of dairy advisory in Teagasc, Joe Patton, looked at the difference in costs on a matched sample of 100 farms completing profit monitor between 2019 and 2022.

During that time, cow numbers increased from 163 cows to 182, so these farms are larger than the average.

Stocking rate more or less stayed the same, but milk solids per cow increased from 497kg/cow to 511kg per cow – a 14kg increase.

There was a significant increase in costs between the years, with fertiliser costs increasing by €117/cow, feed costs increasing by €215/cow, contractor costs increasing by €28/cow, and total variable costs increasing by €478/cow total common costs, including common fixed costs, increasing by €554/cow since 2019.

Joe said that 110% of the change in fertiliser costs are associated with the tonnage cost increasing, as fertiliser use went down while only 65% of the increase in meal costs can be attributed to tonnage costs increasing as usage of meal went up.

Concentrate feed

Concentrate feed use went up from 1,028kg/cow in 2019 to 1,299kg/cow in 2022, while nitrogen use dropped from 213kg N/ha in 2019 to 194kg N/ha in 2022.

Grass utilised per hectare decreased from 9.4t DM/ha in 2019 to 8.9t DM/ha in 2022, a 0.5t DM/ha drop.

“When we look at what happened between the years, we fed an extra 270kg of meal per cow and produced an extra 14kg MS/cow at a similar stocking rate, but when we correct that for the difference in genetics, we would estimate that about 8kg of solids was the difference in production per cow for the extra 270kg of concentrate fed, which is pretty sobering.

"So, even on a high milk price year, we see a negative return to feeding extra meal,” he said.

Joe presented graphs showing that it doesn’t matter what the milk price or concentrate price is on any given year – the relationship between pasture utilised and margin per hectare remains the same.

“Even at the historically high milk price in 2022, output per cow in a volume basis made no predictive ability in terms of profitability.

“Interestingly, concentrate feeding rate only explained about 14% of the variation in milk solids per cow, so there is an awful lot more going on in terms of productivity than just concentrate feed levels, even though a lot of our conversations are around defining our system based on the level of concentrate being fed.”

Joe said that the reaction of many farmers to reduce nitrogen use in 2022 by up to 25kg to 30kg N/ha, without anything else changing, has proved costly in many cases.

“People reacted to high fertiliser costs by using less, and they reacted to high concentrate price by using more.

"It’s up to everyone else to tell me why that happened, but part of me thinks that because milk price was high, there was a very strong prevailing narrative in the industry that we are going to get a windfall response to concentrate fed; and it turns out that we got very little response at all, even at the high milk price.

“This is because it doesn’t matter how high milk price gets, if the marginal biological response to the extra meal is small, you won’t get an economic response anyway," Joe stated.