Quota lease dilemma
Dairy farming has always been an enterprise from which skilled producers have derived a hard-earned but decent return on their labour and capital investment.
But while the new market for milk has enabled some producers to achieve healthy margins, others must pay high quota prices as the value of milk rises. Those leasing in a high proportion of their milk quota are most vulnerable and must focus on production costs.
In such cases, it is imperative to keep a close eye on the marginal economics of milk production. High producing herds may find that those last litres are costing more to produce than they are worth. They will need to reduce input costs at the sacrifice of higher yields.
This is certainly the case in parts of the US where, for some producers, production costs are higher than the milk price.
The US industry, which has tended to comprise high input: High output systems, is being forced to re-think its dairy management. Indeed, some producers are moving cattle outside to pasture in a bid to cut costs.
The concern is whether the North American Holstein can perform as well off pasture? It is an important question.
The UK dairy industry, traditionally more reliant on grazed grass, is becoming increasing dominated by high-indexing, Holstein cows. It will be vital to ensure these animals can make maximum use of grazed grass. It could be an issue which dictates the future profitability of dairy farming.