What to consider before switching from beef to dairy

Although the number of farmers considering a move from beef to dairy is still small, interest is growing and expected to rise further in the coming months, experts suggest.

It sounds counter-intuitive to consider moving away from beef in a year when deadweight prices have hit highs above £4/kg, says Andersons Centre consultant Oliver Hall.

But concerns over the government’s Environmental Land Management (ELM) scheme and erosion of farm support could put many UK beef farmers in a difficult financial position.

See also: How an upland farmer converted to dairying

Historically, beef units have relied more heavily on support payments than other sectors to maintain profitability.

Figures show that when support payments are removed, the average suckler herd lost £135 a cow in 2020.

This has focused attention on the long-term prospects for the sector.

But switching from beef to dairy requires a major investment, both financially and in a change to working practice.

Because of this, the need for rigorous research and planning cannot be over-emphasised, says Kite Consulting’s David Keiley.

Contracts

The main stumbling block for prospective milk producers is a lack of contracts at the moment, with processing capacity filled. Ultimately, any significant expansion in milk production will depend on increasing that capacity and exporting to the world market.

But with demand for milk growing globally, this situation could change and prospective producers should contact a number of processors to discuss opportunities.  

Before picking up the phone, however, prospective new dairy farmers must know what they can offer, Mr Keiley suggests.

This obviously requires a plan of what is possible – cow numbers, likely output and what suits the farm and its management. For example, grazing quality will affect stocking rates and hence herd size and output.

This, combined with the availability of processing capacity, should indicate whether a liquid- or solids-based contract is the way forward.

Costs and finance

Brexit and the Covid pandemic have also had an impact on costs, with prices for materials and labour soaring.

Mr Hall suggests that, when estimating building costs, a contingency of about 20% should be built in to cover rising prices.

Because cashflow requires careful management, he suggests trying to secure an interest-only finance deal to minimise outgoings during the construction phase.

Mr Keiley also advises building in contingencies. Several milk price scenarios and fluctuations in feed, fertiliser and fuel should be covered to establish profitability levels in the most difficult circumstances.

Estimates should then be included in robust budgets and business plans, produced using professional advice.

These must be capable of withstanding intense scrutiny and sensitivity testing.

The contract and business plan can then form the basis of discussions with a lender.

Without affordable financing, the project will not progress because the investment is huge.

Construction of the buildings and milking equipment alone are likely to exceed £1m for a 250-cow herd.

Potential construction costs for a 250-cow dairy farm

  • Parlour: £350,000 to £500,000
  • Dairy: £60,000 to £100,000
  • Cubicle accommodation: £500,000
  • Slurry storage and covers: £100,000 to £150,000
  • Total: £1.01m to £1.25m

Investments

Further significant investments will be needed in slurry separation and handling equipment, particularly in Nitrate Vulnerable Zones.

Added to this, substantial extra and ongoing costs will be incurred in improving the grazing quality. A reseeding policy on a five-year rotation should be introduced and this may include a maize or whole-crop silage, Mr Keiley says.

Bought-in feed will be another significant outgoing. Costs should be factored-in based on bulk quantities put out to tender at six- to 12-month intervals, to encourage price competition between suppliers.

Planning permission

Using a surveyor to identify the potential pitfalls is another prerequisite. Things to watch out for are proximity to neighbouring housing, nearby watercourses and access for milk collection.

An early discussion with local planning officers is advisable, because there is no point in risking funds if the decision is going to be a flat no from the start, Mr Keiley says.

Timeline for switch

Transforming a farm from beef  to dairy production will take time, especially with supply disruption in the wake of the Covid-19 pandemic.

Kite Consulting’s David Keiley suggests that from agreeing the contract, through construction, buying and selling cows, to milk production will take about two years.

Changeover milestones

  • Research systems
  • Secure contract offer 
  • Discuss planning permission
  • Arrange finance
  • Invite tenders for buildings
  • Market beef herd in steps to maintain cashflow
  • Start construction
  • Establish management
  • Tender for feed
  • Buy-in stock
  • Start milk production

Selling

Selling the sucklers in-calf or with calf at foot will maximise their value.

He also suggests dividing the herd into three sale groups to market them optimally – culls, less productive animals and top-performing stock.

Mr Keiley also advises retaining some younger cattle and a proportion of the calves, to help cashflow while construction continues.

All sales should be carried out with the advice of an accountant to provide the most tax-efficient way of disposing of the stock.

Purchasing

When it comes to stock purchases, as with the whole process, research is essential. The genetics of the replacement dairy cows will be dictated by the system chosen and contract requirement.

Milk-recorded herds will help identify animals suited to solids or liquid-based contracts and provide greater security in terms of potential.

Finding the right animals is a waiting game, says Mr Keiley, who recommends scouring lists of upcoming dispersal sales for potential outgoers.

Attention to detail will make the process smoother and more productive. Farmers should visit the seller’s farm to establish how animals have been managed, aiming to dovetail their system with the new setup on their own farm.

Some farmers have even taken their own silage to feed in the weeks leading up to the transfer, to ensure there is no abrupt dietary change, he says.

Health aspects must also be addressed and the farm vets on both sides should liaise and ensure necessary screening is carried out.

Management and labour

While the stockmanship skills needed to care for the cows is similar, the switchover from managing a beef suckler system to milk production is considerable, adds Anderson’s Oliver Hall.

Finding the right staff who are willing to adjust to the routine and potentially unsociable hours is even more difficult, especially with the constraints of the post-Brexit era.

Because of the long construction timetable, Mr Hall suggests nominated staff or a family member should spend time working away on a dairy farm.

On some farms a switch to milk production has fitted in with a succession plan, he says. The son or daughter has spent a year in New Zealand to learn about dairy farm management before returning to take up the reins from their parents.

Market prospects for beef and dairy

Beef

Profits on beef units are being bolstered by the high price point, which has been above the five-year average over the past 18 months. 

Prices are expected to remain high in the medium term, with numbers of beef animals on the ground still low and global demand increasing, says Mr Hall.

But in the long term, when subsidies are removed, there is a far greater risk to suckler beef profitability than milk production.

In an environment without direct farm support, the fact that specialist sucklers have all their eggs in one basket – producing one calf a year from each cow – adds to the risk.

To produce that calf, the farmer has to look after the cow all year, producing forage and buying in bedding to cope with a long and costly winter housing period.

Dairy

In contrast, dairy farms have two income streams – beef and milk – and the latter is a high-protein, versatile product with more marketing opportunities.

With sexed semen and beef breed genetics, dairy farms are increasingly getting more for calves too.

Market prospects for dairying look good. World stocks of cheese and powders are low, so there are good opportunities over the next two to three years.

Beyond those shorter-term openings, global demand is rising steadily and the dairy sector has a lower carbon footprint  than beef because of the production efficiencies.

Despite the milk price fluctuations, over a five-year period profitability for dairy is generally good and, crucially, less reliant on financial support. 

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This article forms part of Farmers Weekly’s Transition series, which looks at how farmers can make their businesses more financially and environmentally sustainable.

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