Twenty ways to protect profit in 2020

Milk prices have fallen by an average of 2c/l for March and some are predicting further price cuts as the full implications of COVID-19 come to pass. With output prices falling, the only way to protect profit is to produce more or reduce the costs of production.

In this article, we look at some of the ways dairy farmers can protect their profit in 2020. Not every step can or will be adopted by all farmers.

Let’s get the conversation on cost-cutting started

While the objective is to cut costs, it’s important not to hinder performance in 2021, rather have the farm business in a good position for 2021. Cost savings are described for a typical 100-cow and 40ha dairy farm.

Let’s get the conversation on cost-cutting started, give your opinion on the suggested cost-cutting measures or add new suggestions by emailing abrennan@farmersjournal.ie and we will follow up in the coming weeks.

1 Use more urea: on a per-kilo-of-nitrogen basis, urea is 15% cheaper than CAN (protected urea is about 4% cheaper than CAN). Presuming there’s 125kg N/ha yet to be spread on an intensive dairy farm, you could save €15/ha by using urea instead of CAN. Ammonia losses can be minimised by spreading urea in damp, calm conditions on dull days.

2 Use less fertiliser: as we head into the period of peak summer growth, the amount of fertiliser being used should be considered.

Firstly, fields that have a high clover content should get half-rate nitrogen from now on. That is 10 or 15 units/acre where you’d normally spread 20 to 30 units/acre.

Secondly, provided there is enough area closed up for silage, you should only grow enough grass to feed demand. If the grass demand is 65kg/day, there’s no point in spreading fertiliser to grow 80kg or 90kg/day. Many farmers like to make surplus bales to feed out at the shoulders of the year, but you need to be aware that this is expensive feed.

3 Maximise first-cut silage yields: the cheapest silage you can make is first cut, as the response to nitrogen is greatest in April and May.

Try to close up as much grazing ground as possible for first cut and minimise any second-cut silage.

4 Reduce meal feeding levels: farmers who get a high response to meal feeding during the summer usually have poor-quality grass. Responses are negligible when grass quality is good. There’s a big difference between what farmers think is the pre-grazing yield and what’s in it when you cut and weigh. In most cases, farmers are grazing covers of 2,000kg/ha when they should be grazing covers less than 1,600kg/ha.

5 Increase protein levels: not only will going into lower covers reduce the need for meal, cows will milk better. A 0.05% increase in protein percent will increase milk price by over 0.25 c/l.

6 Diesel price drop: with diesel prices having almost halved over the last six weeks, there is a potential to save.

7 Contractor costs: with diesel prices so low, a modest decrease in silage harvesting costs can be expected for 2020. I say modest because many contractors don’t increase the cost of cutting silage when diesel prices or inflation goes up.

8 Labour costs: many businesses in the economy have temporarily reduced wages during COVID-19 or have entered the Government’s wage subsidy scheme. Farmers who operate as companies are eligible for this subsidy if they can show that their output is back or forecasted to be back over 25%. This won’t apply to most farmers. Reducing the wages of permanent employees should be avoided, if possible, but pay rises or bonus payments can be postponed.

9 Electricity: according to pricing website www.bonkers.ie, a domestic house can save up to €180 by switching electricity provider.

10 Drawings: the biggest draw on cash within most farms is for household drawings.

11 Silage plastic: rather than buying two new rolls of silage plastic, consider reusing one roll from last season and putting a new roll on top.

12 Avoid track machines: almost every time a track machine comes on to a farm, more work is carried out than intended and more money is spent, not just on the hire of the machine but on stone and pipes, etc. You need to be really disciplined in order to stick to the budget.

13 Milk recording: due to COVID-19, the number of herds milk recording this year is back 20% compared with this time last year. While the information gathered from milk recording is undoubtedly useful, taking a holiday for a year would save around €1,250.

14 Interest only: if in year five of a 10-year loan of €100,000 at 5% interest the annual repayment would be €12,950. Most banks have a mechanism to go on interest only for a period if cashflow is tight. In this example, going on interest only would reduce the annual repayment amount to €3,286. However, the principal of €9,663 will still need to be repaid at a later date.

15 AI versus stock bulls: most farmers will buy a beef stock bull to mop up any cows in heat after six weeks of dairy breeding. Most farmers will keep the bull for two or three seasons. If a new bull is to be purchased this season, it will cost in the region of €2,700. If 75% of the herd are in-calf after six weeks, the bull will have to serve 25 cows and will probably do half of these twice, so 37 serves in total. If AI was used instead of the bull, the total cost would be about €600 so there is a potential saving of €2,100.

16 Do it yourself: many dairy farmers have the machinery to do certain jobs, but have rightly opted to get a contractor to carry out these tasks, freeing up their time for other duties. The option exists to go back and do these jobs in-house. The costs are time, diesel and wear and tear.

17 Reduce reseeding: reseeding costs in the region of €300/acre. While the return on investment from reseeding is high, it is a cost that can be postponed.

18 AI costs: some AI companies offer high-EBI straws at lower costs. The standard cost of high-EBI bulls at Bova AI is €14, but this drops to €10 when more than 60 are purchased. If 180 straws were purchased, the total cost would be €1,800.

19 Pay up front: discounts are usually available if you are willing to pay up front. Cashflow is hugely important for businesses such as vets, contractors and merchants. If you can afford to pay up front, you should be able to negotiate a discount of up to 10%.

20 Feed specifications: at this time of year, there is a big push among feed merchants to sell concentrate feeds with special ingredients. They even call these special rations different names, usually revolving around fertility. Let’s be clear: if your herd is deficient in a mineral or trace element, that deficiency should be resolved. However, paying over the odds for a special ingredient in meal will not by itself improve fertility. All it does is increase the margin for the merchant.

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