The costs to consider before increasing milk output

Dairy farmers considering pushing for output just because the milk price is starting to rise are being warned to beware of the additional costs involved. 

According to independent dairy consultant Phil Clarke of P and L Agriconsulting, the milk price needed to warrant moving to a year-round housed herd milking three times a day is far higher than most people would expect.

Farmworker washing milking clusters

© Tim Scrivener

See also: Think hard if milking three times a day

“A client asked what the miIk price would have to be to make it more profitable for him to change his farming system from a grazing-based one to milking three times a day and housing year-round. So we did the calculations.”

Mr Clarke calculated in his client’s herd of 330 cows yielding 8,600 litres and with a cost of production of 21.77p/litre, he would need to get more than 35p/litre to exceed total farm profits.

“When we did the costings we found even by producing an additional 1m litres, the milk price would need to be consistently more than 36p/litre to benefit the change. The question you need to ask yourself is, do you think 36p/litre for your milk is achievable over the next five to 10 years?”

Production costs  

With three-times-a-day milking, Mr Clarke calculated his client’s production costs would increase by 3.6p/litre.

“Taking into account this increase from 21.7p/litre to 25.3p/litre and the rise in yields from 8,600 litres to 11,600 litres a cow, he would need to get more than 35p/litre to exceed profits from his current twice-a-day-milking, grazing-based system,” explains Mr Clarke.

Three-times-a-day milking v milking twice a day

 

Twice-a-day milking (grass-based system in summer)

Three-times-a-day milking (fully housed)

Variable costs

Cost a cow

Total herd cost

Cost a cow

Total herd cost

Cow concentrates

0.28kg/litre at £185/t

£147,008

0.36kg/litre at £220/t

£303,178

Forage costs

£175

£57,757

£288

£95,075

Vet/med

£80

£26,400

£110

£36,300

AI/semen

£45

£14,850

£55

£18,150

Dairy sundries

£65

£21,450

£96

£31,680

Office livestock

£35

£11,550

£35

£11,550

Bedding/straw

£35

£11,550

£85

£28,050

Dairy repairs

£33

£10,890

£45

£14,850

Herd replacement costs

£253

£77,880

£287

£94,710

Total variable costs

£1,149

£379,335

£1,920

£633,543

Overheads

Labour

£342

£112,860

£487

£160,710

Machinery repairs

£39

£12,870

£64

£21,120

General contracting (slurry)

£28

£9,240

£68

£22,400

Fuel and oil

£30

£9,900

£58

£19,140

Electric

£47

£15,510

£70

£23,100

Water

£9

£2,970

£12

£3,960

General insurance

£30

£9,900

£30

£9,900

Office

£35

£11,550

£35

£11,550

Rent

£129

£42,570

£157

£51,810

Farm repairs

£35

£11,550

£35

£11,550

Total overheads

£724

£238,920

£1,016

£335,240

Total cost of production

 

21.7p/litre

 

25.3p/litre

“It is easy to forget the extra costs associated with the additional milking. Dairy sundries such as chemicals, plant wash, teat dips, liners and parlour repairs will increase by one-third.”

Contracting costs would also increase as all forage consumed are commonly fed out as conserved silage, which has a significant cost over grazed grass.

Mr Clarke explains: “On this particular farm the silage production would have to increase from 600t of dry matter to 1,400t dry matter, as animals are currently grazed for seven months of the year.

“This would increase the total forage production cost from £175 a cow to £288 a cow.

“In addition, all slurry produced would have to be spread rather than only four months’ worth, therefore tripling this cost,” he says.

Labour costs

Often labour costs are not costed into three-times-a-day milking.

Added costs are not just down to the extra milking, but also because an extra milking takes up time when other jobs such as repairs, renewals and crop work would have been done.

This could result in farmers having to employ a contractor to do the extra work.  

Variable costs

In the 330-cow herd Mr Clarke based his figures on, he calculated the variable costs would rise from £1,150 a cow to £1,920 when milking three times a day.

In addition, total overhead costs after finance would increase from £723 a cow to £1,015 a cow.

“You need to remember the extra litres don’t come from fresh air – they require extra feed, both forage and concentrates,” says Mr Clarke.  

He also calculated total concentrate costs would rise from £445 to £919 if assuming an increase in feed rate from 0.28kg/litre to 0.36kg/litre and a jump in concentrate prices from £185/t to £220/t.

This is also based on the client moving from an all-grass system to a 50/50 maize- and grass-based system, therefore requiring a higher protein content in the ration.

Breaking even  

However, if the 330-cow herd doubled to 600 cows the litre price needed to break even reduces from 35p to 31p after additional finance costs on the investment in cows and infrastructure.

Profits of three-times-a-day milking v twice-a-day milking

Milk price

Twice-a-day milking*

Three-time-a-day milking**

p/litre

Profit (£)

Profit (£)

22

6,527

-12,6324

23

34,907

-88,044

24

63,287

-49,764

25

9,1667

-11,484

26

12,0047

26,796

27

148,427

65,076

28

176,807

103,356

29

205,187

141,636

30

233,567

179,916

31

261,947

218,196

32

290,327

256,476

33

318,707

294,756

34

347,087

333,036

35

375,467

371,316

36 (break-even)

403,847                 

409,596

*330 cows, milking twice a day, producing 2,838,000 litres at a 21.77p/litre cost of production

**330 cows, milking three times a day, producing 3,828,000 litres at a 25.3 p/litre cost of production

“There are exceptions where three-times-a-day milking is working well,” says Mr Clarke.  

“Certain farms suit this system because of layout, among other things. However, if you have a simple, low-cost system, it is better to keep it that way than push for litres.”

He adds: “With the long-term predications for milk price at 26.5p/litre [IFCN 10-year forecast], don’t start thinking we are out of the woods just yet.

“The focus still needs to be on your cost of production rather than the size of your milk cheque.”

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