Cost increases overshadowed a promising farmgate milk price rise from 2010-11 to 2011-12, says a DairyCo report.

Average milk price rose by 12% in the sample of 315 farms in the Milkbench+ report, but other cost rises swallowed extra revenue.

Average price of compound feeds rose by 18% in the same period. Pasture land rents and fertiliser increased by 13% and 14% respectively. “As a result, the higher milk price was not fully translated into higher net margins,” the report said.

Some systems fared better in holding on to the extra revenue. The report breaks systems down into cows at grass, composite herds (mostly year-round calving, family labour but with a mixed approach to housing and feeding) and high output herds.

The cows at grass system managed to retain 59% of the increase in milk price as extra net margin, compared to 36% and 23% for the high-output cows and composite systems respectively.

The rest of the rise in milk price was consumed by higher costs, especially feed, labour and machinery costs, said the report.

It found that four specific cost areas explained at least 60% of the difference in net margin between the top and bottom 25% farms in the three enterprise types:

  • Feed and forage variable costs
  • Herd replacement costs
  • Labour costs (paid and unpaid)
  • Power and machinery costs.

Most farmers have potential to make improvements in their business, the report suggested.

For example, the top 25% producers in each type had lower herd replacement rates through lower mortality and culling rates.

Fixed costs accounted for 70% of the difference in total costs of production between the best and worst producers in cows at grass and composite enterprises.

In high-output systems, fixed and variable costs tended to have an equal share in the difference in total cost of production, with differences in feed costs having the biggest single effect.

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