21 June 2002

Success means being top 10%

MAXIMISING cows numbers and litres of milk produced is essential to maximise returns when investing cash in a new dairy unit.

At the Dairy Solutions 2002 conference, Kite Consultings John Allen told producers that 10% of herds will leave the industry this year.

"For the remaining herds, it will not pay to invest in a new dairy until milk prices improve, which they will."

To ensure success with any investment, make sure you can compete with other herds, aiming to be in the top 10%. Also grasp any opportunities that may arise, such as buying cheap cows to sell later when prices increase, he said.

Careful business planning is essential. Planning for the new 600-cow dairy unit at Kemble Farms took more than a year before any decision was made, said herd manager David Ball. "The two existing dairies had reached the end of their productive life and milk production costs were too high at more than 22p/litre."

But expansion of the herd was slower than anticipated after the unit was built due to the cost of additional quota.

"This meant return on capital was lower than expected and a delay in reaching profitability."

The percentage return on extra capital is driven by the amount of milk produced, said Mr Allen. "A herd of 400 cows yielding 7000 litres will give a return of 4.6%. This can be increased to 19% just by having an additional 200 cows and boosting production to 9000 litres a cow.

In his experience, the break-even milk price for a new dairy is about 18.8p/litre which falls to 16.1p/litre by year seven.

"This does not include any profit or cash for reinvestment. Therefore, we shouldnt deceive ourselves that milk can be produced for 16p/litre." &#42