Coronavirus: Dairy cost-cutting tips to help reduce output

The Coronavirus pandemic is likely to have long-lasting effects on many dairy businesses, with the closure of pubs and cafes leading to milk destined for foodservice becoming homeless.

This has had a ripple effect on the whole industry, with milk processor Muller asking suppliers to reduce supply by 3% in an attempt to balance milk intakes.

In the latest AHDB webinar (23 April), Oliver Hall, an Anderson’s business consultant; Tracey Towers, a vet from Lancashire-based Oakhill Veterinary Centre; and Piers Badnell, consultant for the Livestock Improvement Corporation (LIC), give advice to farmers who have been asked to reduce milk supply.

See also: Coronavirus: 4 tips for dairy farmers hit by slump in milk demand

1. Can you graze a proportion of your herd to reduce feed costs?

  • Many herdspeople running higher-yielding herds will be worried about losing milk, but cost savings must be considered
  • Work out your own costs: Feed and housing costs versus reduced milk yield (see example below in “scenario” box).
  • Target cows that are giving <30 litres and in-calf
  • If a cow hasn’t grazed seriously before it is going to be a shock – but it is actually hardest to train the person, not the animal
  • Typically, a cow will lose 10 litres due to the change in diet, environment and social group
  • If you provide good quality grass the cow will “bounce back” to 25 litres after 3-6 days.

2. Practical solutions for grazing

  • Don’t set stock cows, rotationally graze
  • Target feeding 15kg DM of grass a cow a day (100 cows will require 1,500kg DM a day or 1ha)
  • Aim for a 20-25-day rotation. This means you should be back in the first paddock you grazed within 20-25 days
  • On a 25-day rotation this would mean you require 25ha (stocked at four cows/ha)
  • Enter 1ha paddocks at 3,000kg DM and graze to 1,500kg DM
  • Four cows/ha requires a daily growth rate of 60kg for each rotation
  • If you don’t have a plate meter to measure grass, ensure you do not graze pasture until the three-leaf phase, so you don’t compromise re-growth
  • Ensure cows go out to grass with an “edge of appetite”
  • Don’t buffer feed unless you are short of grass or area
  • If you need to buffer feed, do so before afternoon milking. Milking causes a hormonal response to drive the cow to eat and drink, so this will maximise grass intakes.

3. Drying off cows

  • When you are feeding as one group be cautious of long dry periods as cows can lay down too much internal fat – for example, 10 weeks and over. That’s when you risk poor and costly transition.
  • If you are drying cows off earlier than usual, have you got the facilities to cope with this? The worst thing you can do is restrict feed intake in the last three weeks before calving
  • If you have a large variation in dry cow length, is your dry cow group big enough to manage as two groups? This would cheapen the ration for far-off dry cows (more than three weeks pre-calving) and it also allows you to better manage body condition.

4. Budget for an income drop

 Step 1: Work out what you want to achieve. Do you want to: 

  • Protect the balance sheet or, failing this, minimise the reduction?
  • Protect profit?
  • Preserve cashflow?

Step 2: Work out profit and cashflow requirements

Use last year’s accounts to work out:

  • Drawings (including pension and life insurance)
  • Bank loan repayments (capital only, interest is included in the P&L)
  • Tax (as you will be paying for the previous year)
  • HP payments.

Step 3: Estimate your income

  • Consider milk, cull cow, calf sales, BPS and any other
  • Be realistic: use today’s prices but look at future markets as a reference point.

Step 4: Calculate your budgeted income minus required profit to give you target costs

This can be turned into a ppl figure by dividing it by the amount of milk you produce annually.

Work through all the cost lines in your budget with the target of achieving targeted costs.

Step 5: Can you make it balance?

If you can’t hit your target costs, consider:

Reducing profit demand by:

  • Lowering drawings
  • Asking lenders for a capital repayment holiday

Or:

  • Introduce private funds
  • Sell assets on the farm such as surplus stock, forage or machinery
  • Borrow the balance from your bank.

Tips 

  • Avoid valuation increases. If you are rearing surplus stock, for example, consider selling them
  • Can you delay reinvestments in machinery, so you don’t spend this year’s depreciation?
  • Protect people and cows – these are non-negotiable
  • Ask suppliers for a price reduction
  • Lock in variables such as feed and fuel
  • Benchmark your costs to highlight areas where reductions could be made
  • Eradicate waste

Scenario

  • Milk reduction: If the milk price is at 27ppl then a reduction of 7 litres will cost £1.89 a cow
  • Feed cost: Feeding a 30 litre cow at 8ppl will cost £2.40, plus 4kg of concentrate at 18p/kg, or 72p. Total saving is £3.12
  • Housing cost: £1.50
  • Net: £2.73 (£4.62 minus £1.89)

Webinars on demand

Several Farmers Weekly webinars are available to view including topics such as Agribanking, Succession and Tax, OSR yields and more.
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