Climate challenge: Modelling the cost on a dairy farm

For Farmers Weekly’s second part of “Rise to the Climate Challenge” series, Jez Fredenburgh examines the financial impacts of different weather scenarios on a dairy enterprise.

“The grass always looks greener on the other side,” takes on real meaning if you are a dairy farmer. Each spring is keenly spent hoping for a good dose of wet and warm weather to get the grass growing and the yields up.

Equally, too much rain at the wrong time of year can be disastrous for pastures and forage, as can weather that is too dry and hot. Costs can quickly escalate for bought in feed, cooling and the like, while at the same time yields can suffer.

Good business planning to mitigate against weather-related risk is therefore key. This has its challenges, but integrating weather into every aspect of forecasting – and planning five to ten years ahead – can help make businesses more resilient to related shocks and stresses.

“Many of the effects are difficult to avoid,” says The Andersons Centre. “But if you are aware of the risks and subsequent impacts then you can account for the changes in any sensitivity analysis you apply to your budgets/business plans.

“Like any business risk, understanding the effect and its likelihood is important when considering future farm systems.

“The preferred system depends on many factors specific to the farm, its resources and milk contract, but taking a fresh look at it can often make it more resilient to changes rather than continuing with what has always been done.”

Look out for

  • This is the second part of Farmers Weekly’s ‘Rise to the climate challenge’ series. You can still access the first part, which focused on an arable enterprise
  • In the 12 December issue – weather impact model for a mixed livestock business
    2015 – expert business planning advice each season on practical adaptation measures for arable, dairy and mixed livestock farms. 

A team from Adas, The Andersons Centre and The Farming Advice Service, has collaborated to model the impact of different weather scenarios on a given dairy farm.

Left to simply react to the weather, rather than be prepared for it, the model farm clearly suffers great swings in costs and income, amounting to a difference in total business surplus of £40,000 between a good and bad year of weather.

And that is not taking into account changes in feed and electricity costs or milk prices.

The most challenging weather scenario modeled was a hot spring and summer with low rainfall. This resulted in a 4% reduction in milk yields, while costs for feed (+ 29%), artificial insemination (+12%) and water (+12%) took the business surplus to -£30,866.

Being so exposed is cleatrly unssustable. Taking a more proactive rather than reactive approach can help make a business less susceptible to the whims of the weather – and other unrelated costs.

“If you’ve got a business that is more resilient to price, weather and whatever else, they you’re going to be here for the long run,” advises The Andersons Centre.

*The financial impact below each weather scenario is based on a dairy farm with 150 cows averaging 7,500 litres on 100ha of part-rented grassland. The farm has year-round calving and is on a liquid contract. It has one owner and one further farm worker. 

Scenario 1: High summer temperatures, normal rainfall and sunshine levels

9% increase in artificial insemination (AI) costs due to reduced conception rates. edit Master title style. Increased vet and medicine costs due to increased incidence of mastitis. Greater contractor costs (+5%) due to more silage volume. Higher water costs (+5%) due to increased consumption.
 Increased electricity costs for milk cooling etc.
 Cow and heifer concentrate feed costs reduced due to good forage availability and quality. Pence/litre

 

 (p/litre) Scenario 1 Normal year of weather
Milk price 26.6 26.6
Total output 29.5 29.5
Variable costs 13.5 13.1
Overheads 11.4 11.2
Rent, finance & drawings 5.9 5.6
Cost of production 30.8 29.9
Margin from production -1.3 -0.5
Basic payment and ELS 1.8 1.7
Business surplus 0.4 1.2
Business surplus total (£) 5,226 14,897

 

Scenario 2: High spring and summer temperatures, with low rainfall for a sustained period

 

Milk yield reduced (-4%).
 Concentrate feed costs increased (+6%) as less forage to graze and conserve, therefore bulk feed costs increased (+23%).
 AI costs increased (+12%) due to lower conception rates as a result of heat stress.
 Higher water costs (+12%) due to increased consumption. Increased electricity costs (+10%) for milk cooling etc.
 Reduced straw costs due to extended grazing period. Milk yield reduced (-7%), reduced low dry matter forage and poor silage quality, therefore concentrate costs increased (+15%).

 

 (p/litre) Scenario 2 Normal weather year
Milk price 26.6 26.6
Total output 29.7 29.5
Variable costs 15.6 13.1
Overheads 12.4 11.2
Rent, finance & Drawings 6.4 5.6
Cost of production 34.4 29.9
Margin from production -4.7 -0.5
Basic payment and ELS 1.9 1.7
Business surplus -2.8 1.2
Business surplus total (£) -30,866 14,897

Higher than average rainfall, with 25% more throughout the year

 

Scenario 3: Higher than average rainfall, with 25% more throughout the year.  Straw cost and fuel cost increased (+15%) and labour cost increased (+4%) due to longer housing period. Contractor costs increased (+10%) due to greater silage volume and grassland structural repair work/re-seeding. Reduced water costs due to lower consumption (-5%).

 

 (p/litre) Scenario 3 Normal weather year
Milk price 26.6 26.6
Total output 29.6 29.5
Variable costs 14.8 13.1
Overheads 11.9 11.2
Rent, finance & drawings 6.2 5.6
Cost of production 32.9 29.9
Margin from production -3.3 -0.5
Basic payment and ELS 1.8 1.7
Business surplus -1.5 1.2
Business surplus total (£) -16,789 14,897

 

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