Profitable Progress to 2,500 kgsMS/ha

Why would you want to produce 2,500kgMS/ha? To prove that dairy farmers can overcome New Zealand’s achilles heal, which is the low rate of productivity improvement over the last 25 years.

Profitable progress could be defined as making continuous improvements in the level of profitability. For dairy farmers this might mean progressively moving to an 8%-10% return on assets at a milk price of $4.00 per kg of milksolids, and then from there to even higher levels of profit.

For the sake of simple maths, producing 2,500 kgsMS/ha could mean running 5 Friesians per hectare that are producing 500 kgsMS/cow or 5.5-6.0 Jersey/Jersey Crosses producing 420-450 kgsMS/cow.

Why would you want to produce 2,500kgMS/ha?
To prove that dairy farmers can overcome New Zealand’s achilles heal, which is the low rate of productivity improvement over the last 25 years. We should be clear here, that the problem is not a pasture issue. It is a productivity issue. As a group, New Zealand dairy farmers are excellent pasture managers and as a result there are comparatively few opportunities for the industry to produce more milk from a pasture only base.

So what should be our key goals?
To design farming systems that produce dramatically more milk per unit of invested capital.
To do this you must:

  • Run heaps more cows per hectare
  • Get these cows to produce bucket loads of extra milk
  • Accomplish this so that you make truck loads of additional cash

    • More Cows, More per Cow…How?
    The use of cost effective supplements is the key. Although high quality forages can comfortably allow Friesian cows to exceed 400 kgsMS/cow, concentrates/grains as well as high quality forages are required to achieve much higher levels of per cow production at very high stocking rates. Maize silage is likely to play a significant role due to its consistent high quality and it’s relatively low cost per kgDM.

    At such high stocking rates sources of protein are critical, as pasture may comprise less than 50% of the diet. This means that products such as lucerne and high quality pasture silage may be important components in these systems. The concentrates/grains used by Intelact clients are likely to be high quality grain based byproducts that are sourced at less than $300/t, some of which have high levels of protein. It is difficult to source concentrates and grains at competitive prices in New Zealand, a key factor in our industry’s poor level of productivity growth when compared to our competitors such as Australia and US.

    What are likely to be the level of feed inputs to achieve 2,500 kgsMS/ha?
    Using a combination of our clients that are producing between 2,000 and 2,600 kgsMS/ha we can suggest annual feed consumption may include:

  • Maize silage intakes of 1,400-1,800 kgsDM/cow (fed at 5-6 kgsDM/cow/day)
  • Lucerne intakes of 600-1,000 kgsDM/cow (fed at 2-3 kgsDM/cow/day)
  • Concentrate/grain intakes of 800-1,200 kgsDM/cow (fed at 2-3 kg/cow/day)
  • Pasture intakes of 2,200-2,800 kgsDM/cow (fed at 5-10 kgsDM/cow/day)

    • What are the financial results?
    In the table below we have compared the potential results from producing 1,280 kgsMS/ha, 1,800 kgsMS/ha and 2,500 kgsMS/ha. Also included is an estimate of the top 10% and average performance of New Zealand dairy farmers based on Dexcel's ProfitWatch results combined with other privately collected data. These have been assessed using Red Sky Farm Performance Analysis, a new farm analysis tool that will shortly be available to all New Zealand farmers.

    The key factors in the results are:

  • Milk price
  • Pasture harvest as this directly impacts on the real cost of pasture
  • Supplement costs, which should include an assessment of wastage and storage costs as well as all other capital and variable costs
  • All other farm costs, which should be maintained at similar per cow or per hectare levels even with the additional focus on cow numbers and individual performance

    • The results below are all standardised for a 100 hectare farm with a value of $7,000 per acre plus dairy company shares to support the varying levels of milk production. All cow values are standardised. The three developed scenarios represent farmers who have at least maintained pasture harvest as cow numbers and milk production have increased, while maintaining a purchased forage cost of $200/tDM and a purchased concentrate cost of $250/tDM. As a result they could be characterised as both focused on their business and comparatively competent.

    Table 1: Red Sky Return on Assets

     

    Milk Price

    $3.00

    $3.50

    $4.00

    $4.50

    $5.00

     

    1,280 kgsMS/ha

    2.6 %

    4.8 %

    7.0 %

    9.2 %

    11.5 %

    1,800 kgsMS/ha

    2.6 %

    5.4 %

    8.2 %

    11.2 %

    13.7 %

    2,500 kgsMS/ha

    2.2 %

    5.6 %

    9.0 %

    12.4 %

    15.8 %

    NZ Top 10%

    3.1 %

    4.8 %

    6.6 %

    8.4 %

    10.1 %

    NZ Average

    0.1 %

    1.5 %

    2.9 %

    4.3 %

    5.7 %

    The higher production systems maintain a profit advantage until milk price is between $3.00 and $3.50 per kgMS. At milk prices of $4.50/kgMS and above the profit increases dramatically as compared to the lower production systems.

    Table 2: Red Sky Operating Profit (EFS)

     

    Milk Price

    $3.00

    $3.50

    $4.00

    $4.50

    $5.00

     

    1,280 kgsMS/ha

    $ 74,856

    $ 138,856

    $ 202,856

    $ 266,856

    $ 330,856

    1,800 kgsMS/ha

    $ 84,930

    $ 174,930

    $ 264,930

    $ 354,930

    $ 444,930

    2,500 kgsMS/ha

    $ 82,155

    $ 207,155

    $ 332,155

    $ 457,155

    $ 582,155

    NZ Top 10%

    $ 82,519

    $ 130,452

    $ 178,383

    $ 226,316

    $ 274,247

    NZ Average

    $ 1,622

    $ 37,093

    $ 72,564

    $ 108,035

    $ 143,506

    At a milk price of $4.00/kgMS the operating profit of the 2,500 kgsMS/ha is around double that of the NZ top 10% group. Even at a milk price of $3.00/kgMS, the operating profit is competitive with the NZ top 10% group.

    Table 1: Red Sky Selected Expenses

     

    Expenses

    Feeds incl. Pasture/Graze

    Fertiliser Non-N

    Repairs & Maintenance

    Vehicles incl. Fuel

    Wages & Employ. Exp

     

    1,280 kgsMS/ha

    $ 138,730

    $ 16,100

    $ 13,000

    $ 11,200

    $ 86,424

    1,800 kgsMS/ha

    $ 249,044

    $ 14,690

    $ 15,000

    $ 15,000

    $ 111,472

    2,500 kgsMS/ha

    $ 423,417

    $ 13,420

    $ 17,000

    $ 20,000

    $ 141,536

    NZ Top 10%

    $ 42,743

    $ 22,932

    $ 10,699

    $ 9,916

    $ 73,420

    NZ Average

    $ 32,160

    $ 21,702

    $ 4,708

    $ 9,681

    $ 77,529

    It is evident that despite a substantial increase in the cost structure, these highly productive systems can be very profitable. When well managed they are relatively robust under changes to milk price. Supplement costs are a key driver of profit and as a result dairy farmers involved with these intensive systems become skilled at assessing feed and professional in regards to sourcing feed. Management flexibility must still be ‘built in’ to allow for adaptations under different milk price and supplement cost scenarios.

    If you are considering taking up the challenge of rapid increases in profit and lifting your level of productivity, maybe even targeting 2,000-3,000 kgsMS/ha in the coming years, then we urge you to seek advice from those who understand both the physical and financial implications of these systems. And above all, adopt an attitude that you will MAKE IT HAPPEN.

     
    Warren Morritt & David Beca Intelact Nutrition Limited