25 April 1997

BUYER SWITCH? BEWARE…

Dairying incomes are under pressure. With prices down by as much as 3p/litre this month, it may be tempting to switch milk buyers. But when deciding whether to make the change it will pay to be cautious. Recent failures in the milk industry have shown that financial stability is the first requirement.

Does the buyer provide credit insurance and how much notice do you receive if the contract price changes are obvious questions to ask.

But as this Dairy Update explains, producers thinking of switching buyers should hold fire for the time being. Price differentials between dairies will be eroded as milk prices fall further. Revaluations of green rates last month knocked another 3% off butter and skimmed milk powder prices – which equates to 0.8p/litre off the milk price, although this will not have an immediate impact on milk cheques.

Higher milk collection charges are also putting pressure on smaller producers – with some facing punitive drops in milk incomes.

Clearly, there is a need to reduce production costs to enable profits to be maintained.

This will involve maximising use of high quality, home-grown forage – be it grazed grass, legumes such as lucerne or clover, or forage maize.

Good stockmanship and first class hygiene will also pay dividends and thats not only through improved performance, cow health and lower vet bills. Top hygienic quality milk alone could earn an extra 0.6p/litre in premiums – and other buyers are now paying premiums for superior stockmanship.

Combined, these premiums could be worth 1p/litre – which for some equates to 30% of net profit. It will pay, therefore, as price falls and net profit is reduced, to ensure the standards required to qualify for any available premiums are met.