DURING the past couple of weeks, despite uncertainties over the extent of the cull policy, dairy farmers enthusiasm has pushed leased 4% quota to 14.5p/litre.
As that is 2.5p over our budgeted outlay, I decided to work out the economics of milk production for us at this level.
Figures in the table will probably have a significant effect on our medium to long-term planning, involving further capital investment to increase milk production. Gross margin is £250 an extra cow inclusive of all variable costs.
This margin has been formulated using targets for next year and technical performance needed is above average. The cow feeding is based on all straights to cut costs, for winter concentrate prices have taken a huge jump over last year. The variable costs used are actual costs at Degar and give me a true reflection of real costs. I have been quite generous with milk price, as reductions look probable next year.
It does illustrate what effect quote has on margins with every 1p increase in leasing costs knocking £75 off the gross margin. If all of that margin could be kept as profit, fine. But as soon as a rise in fixed costs (labour) or capital requirements (cow housing, forage storage, land purchase) is needed, milking extra cows needs further scrutiny if any return is to be made at current leasing prices. *
Gross margin analysis on keeping an extra cow at Degar
£ a cow
Milk 7500 @ 25.5p/litre1,912
Concentrates 2.lt @ £140/t294
Quota 7500 @ 14.5p/litre1,087
Maize silage purchase
5t @ £20/t100
Grass silage costs
4t @ £17/t68
Gross margin a cow250
Feeding straights will help reduce next winters production costs at Degar and will help to justify increasing cow numbers.