The challenge and opportunity to remove farm working expenses (FWE) is illustrated by the table – an example farm budget. This assumes a milk price of $5.30/kg MS and a typical farm debt of $21/kg MS.
Farm working expenses vary considerably between farms and commonly range from $3.50-$5.20/kg MS, affecting the available cash. Farms with low FWE (less than $4.00/kg MS) have a greater ability to maintain a positive cashflow at the forecast milk price. There is a strong relationship between profit/ha and FWE/kg MS.
Budgeted cash surplus ($/kg MS) for a typical range of farm working expenses ($/kg MS), at a $5.30 milk price.
|Surplus for tax and re-investment ($/kg MS)||0.15||-0.35||-0.85||-1.35|
With many costs already built into the system for this season, the focus needs to be on how to maximise the return from these costs. This demands efficiency gains – more output per unit of input, or the same output with less input.
Reassess all costs as some will have crept in because the money was there to pay for them at higher milk prices. Take a ‘pasture first’ stance. Pasture has already been paid for – don’t waste it.
Potential areas where cost input could be removed without impacting profit could be identified from benchmarking FWE against other farms using DairyBase. Some common examples are as follows.
- Reduce feed costs with accurate pasture management and supplement use.
Only feed supplements when there is a pasture deficit. There is plenty of research which demonstrates that increasing the proportion of pasture in a cow’s diet reduces the cost of production. Many farms have been chasing high milksolids production per cow to the detriment of pasture management, with resulting increased costs.
- Reduce fertiliser costs by adjusting amount and type of fertiliser applied.
Many soil tests and the resulting nutrient budgets show fertiliser nutrients (especially phosphate) are regularly applied in excess of what’s required to maintain current production
levels. Investing in appropriate soil tests and fertiliser advice could reduce costs.
More is not always better
The previous examples are based on the principle that more is not always better. Increasing production does not always lead to more profit. The production level where profit is maximised is not the same as maximising production.
Several studies using data from a large number of farms have shown that as the proportion of purchased feed increases, milksolids yield increases but farm profitability does not increase at the same rate. As well as the cost of purchased feed, associated costs such as wastage, fuel, labour and capital required for equipment decrease profits.
Profitable, resilient farming is about aiming for the appropriate balance between revenue and costs. Adding inputs to improve revenue only works to increase profit up to a point. Equally, removing inputs and reducing revenue can also increase profit, but again, only up to a certain point.
This article was originally published in Inside Dairy December 2014