By John Lyne
THE answer is a resounding yes!
As opposed to the corporate model, the family farm has significant advantages in a number of areas.
Areas such as labour cost and animal husbandry are major in cost of production.
The corporate model possibly has lower financing cost, but perhaps its greatest strength is adoption of technology, both intellectual and equipment.
Generally speaking, the family farm has not taken advantage of performance monitoring systems, whereas it is a normal component of the business model of corporates (corporates here can include large herd operations that are still family owned).
To know where we make profit, and how, but also were we don’t make profit or lose money, and why, are paramount to survival in an increasingly unsettled dairy economy and regular adverse seasons.
We must make moderate profits in years like 2013 to enable growth in better years.
With 2015 already bearing hallmarks of 2013, now is the time to consider monitoring our business performance; both physical and financial although neither are independent of each other.
MOFC (Milk income Over feed Cost) determines how well we’ve managed feeding our cows.
I was blessed in my first share-farm to be mentored by a farm owner who knew very well, the more feed we could get cows to eat the more milk we produced.
He would say to me: “if you can get them to eat it, then give it to them and I’ll buy some more!”
Over the last 40 years I’ve learnt a lot more on energy density, fibre and protein balances to refine my old boss’s mantra.
Nevertheless his principle stands.
We just need to ensure energy, fibre and protein content of our rations is working positively to best feed conversion efficiency.
In recent years we’ve focused, or refined our analysis of rations and production performance to include Feed Cost/litre, as it largely determines MOFC outside of milk price/litre.
The hundreds of Feed Cost/litre calculation we’ve done in recent years has been an education in itself: What determines Feed Cost/litre, and what areas can we manipulate to improve this critical profit driver?
At a national average around 5000/lts/cow we have room for improved profit.
It is a matrix or combination of several factors, none of which are independent of any of the others.
Obviously the first is feed intake. If cows do not have opportunity to eat to physical capacity (and other factors can influence this intake potential), then we’re losing milk production for a very basic reason; underfed cows.
Apart from feed availability, how the cow is prepared for lactation will have massive impacts on her intake potential and every other parameter that influences her performance – health and reproduction.
Energy density is next in the critical analysis of reasons that determine Feed Cost/lt and then MOFC, again apart from actual litre price.
Litre price obviously has a massive impact as the wild fluctuations we’ve endured in recent years have born witness too. However, the factors we’re looking at here have the same influence on Feed Cost/lt irrespective of milk price.
These are the things we can influence; milk price is largely out of our control.
Energy density is simply Mega Joules of Metabolisable Energy/kg DM (dry matter).
Everyone understands that wheat at 13 MJME/kg DM is far more capable of producing milk than hay at 7 MJME/kg DM.
This is probably a good example to look at this summer/autumn when hay could be the same cost as wheat/tonne.
Yet to look at both in terms of cost/MJME, there is a major difference.
This difference then has a multiplier effect when we look at wheat cost, or hay cost, converted to milk dollars in response to feeding each.
Wheat at 33c/kg has an energy cost of 2.5c/MJME.
Hay at 30c/kg has an energy cost of 4.3c/MJME.
When we need 5.6 MJME to make 1lt of milk, that litre produced from wheat cost 14c to produce – Feed Cost/lt.
Similarly, 1lt produced from hay cost 24c!
When you figure in other costs of getting each of these feeds into the cow’s mouth, the hay Feed Cost/lt can blow out to be more than the milk price/lt – we lose money in this scenario.
The interesting thing is, as we use higher energy dense feeds, NDF (fibre – gut fill) tends to decrease and in most normal on-farm feeds, protein also improves.
The old adage: quality feeds are always the most profitable.
When I compared two farms’ ration analysis a few years ago in March there was a $4 MOFC (profit) difference per cow per day.
Why? Energy density variations in the two rations which in turn effected feed intake.
Feed intake produced two very different milk responses and milk incomes, which then had major impacts on Feed Cost/lt.
Feed Cost/lt is also strongly influenced by fixed costs.
In our analysis we only take energy required for maintenance which is a dead cost.
Obviously, the higher the energy intake, the higher the proportion going to milk production producing higher milk income and lowering, proportionately, the dead cost of maintenance, = higher profit: in this case $4/cow/day.
Multiply $4/cow/day higher profit by 250 cows and $1000 day extra profit looks very attractive; simply from a better ration.
Our industry has an obsession with cutting costs and no consideration to productivity gain; more milk income from better rations.
It is my experience that production costs are not the issue; it is far more likely debt servicing drives this cost cutting mentality to reduce grain and fertilizer bills sending farm businesses into downward production and financial spirals.
Perhaps the family farm’s two goals for future prosperity are to increase productivity and reduce debt servicing cost.
Farm finance is outside my area, but I’m very aware it is crippling the family farm and improved productivity is at least one avenue of escape.
John Lyne is a dairy production specialist with Dairytech Nutrition. For more information, visit www.dairytechnutrition.com.au