Keep a tight rein on overheads

7 May 1999

US dairymen must cut costs or quit

Prospects for US milk

producers, cost cutting and

genetic progress were hot

topics at last weeks

International Grassland

conference at Harper Adams

college, Shropshire.

Robert Davies reports

SOME American milk producers are relearning grazing management skills as they struggle to cope with a collapse in milk prices.

But with half of US dairy cows confined all year, and a growing proportion in giant units carrying up to 28,000 milkers, most producers claim that they have no choice but to add more cows.

Allan Nation, editor of The Stockman Grassfarmer, a Mississippi based magazine, said that all American dairy farmers were hit when farm-gate milk prices slumped to close to the cost of production in February. Corporations that had invested heavily in high-input, high-volume production units entirely depending on purchased feeds felt the chilliest economic wind.

Mr Nation told an international Practice into Profit conference at Harper Adams College that average margin a cow had fallen to one-third of its peak level. But skilled grassland farmers with low input costs were better placed than those running 1000 cows on 16ha (40-acre) desert units.

Where there was reliable summer rainfall they could use the cheapest forage – grazed grass – cow health was generally better, so depreciation was lower, and they were cushioned from increases in the cost of purchased energy and protein. There was also potential for them to become even more efficient forage managers.

Conference delegates heard that US liquid milk sales were 15% lower than 20 years ago. In 1996 average per capita milk consumption was 87.36 litres compared with 234.32 litres of soft drinks. But catering demand, especially for pizza, had increased cheese consumption to 12.9kg a head (28.5lb), 68% of this consumed outside the home. In general, sales of milk and dairy products have increased faster than supply. This and government subsidies of up to 50% on the milk price in areas not suitable for traditional dairying had encouraged the development of massive units with cows held in yards. In these, cows were milked in shifts by cheap Mexican labour and production was processed on site.

Cow fertility and longevity was poor, especially where BST was used to boost yields. While the average production life was three lactations, many non-grazing herds had a 50% replacement rate.

"Now there are even units where cows are milked for a single 18-month lactation and then slaughtered," Mr Nation said. "A heifer replacement costs around £1000 and a cull sells for £220."

The economics of this were crazy, he said. There were also serious welfare implications, which the US public had yet to grasp. But already dairying was being driven away from populated areas by complaints about smell. At least one city was already forcing intensive producers to pay to have manure hauled away for spreading.

"With the milk price close to the cost of production it seems American and British farmers are in the same boat. US producers have two choices, they must cut costs or quit – hope and prayers will not work."


&#8226 Collapse in milk price.

&#8226 Greater use of grazing.

&#8226 Cut costs or quit.

NZ genetics have the edge

NEW Zealand is more likely than the US to provide the genetics needed for spring calving herds producing milk from forage.

Moorepark researcher Pat Dillon reported on Irish trials and commercial farm experience indicating problems achieving compact seasonal calving with the daughters of top US Holsteins.

Some results also indicated that while going for top genetic merit produced the highest yields it did not generate the best margin a litre, he told delegates.

A comparison of two Holstein herds with two French breeds recorded infertility rates of 7% and 12% for imported cows, 13% in one Holstein/Friesian herd, and 26% in the herd dominated by US bloodlines.

Dr Dillon suggested that breeders needed the calving interval figures of daughters of high index bulls, and more information was required on links between angularity, muscularity and fertility.

US Holsteins might not be best for grass-based systems. Cows sired by New Zealand bulls or even crossbreds could be more suitable where reliable seasonal calving was required by producers, he told the conference.

Keep a tight rein on overheads

DAIRY producers need to spend much more time thinking about ways of reducing their overheads.

Steve Ellwood, head of Midland Bank Agriculture, said it was not always easy to cut back. He told the conference that labour charges represented people and so were sensitive. But machinery inputs could certainly be tackled, especially by those whose affinity with machines seemed to go well beyond the demands of their businesses.

While acknowledging the dairy industrys problems, Mr Ellwood insisted it was not in terminal decline. The good old days when there was no limit on production and a guaranteed price had gone. Now producers needed technical efficiency to cope with capped production and falling prices.

"Good practice and skills are an essential pre-requisite to making a profit," he said. "We have made farming more technical and complicated and it is difficult to see businesses individual components."

But a clear picture was needed. Individuals should calculate their true profit/litre, and have a benchmark against which to compare it. When the result was not satisfactory questions had to be asked, such as the economics of taking three silage cuts rather than one, and the real margin response to concentrates fed.

On new investment Mr Ellwood urged caution. A farmer should take an honest look at whether it could be justified by profit/litre, or whether it made the business better or worse off.

He was confident about prospects in the medium and long term. The value of sterling would fall. If suggestions that consumers were only prepared to pay 8 or 9p/litre for world market milk there would be some pretty thirsty people around. They would have to buy at a price at which it can be produced most efficiently, so UK farmers had to optimise their advantages. &#42

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