Stick or twist with rising costs?


Eoghan Mullery, Head of Technical at Advanced Nutrition, takes gambling with your farm business out of the equation…


Stick or twist with rising costs?

We all know, over the next twelve months we’re going to see a volatile market. I don’t have to highlight the predicament the dairy industry is in. However, in the face of adversity, Dairy Farmers don’t need sympathy but solutions that will help mitigate the current situation, without hindering progress in the longer term. Advanced Nutrition have always maintained a practical and pro-active approach and this is something that we will continue to do. Over the course of the next month we’ll be working with our clients to create solid plans, bespoke to their own enterprise, to navigate a way through.

Rising costs are pushing variable costs up and up. Fertiliser, energy and feed costs are not the only cost increase, but for the majority will be the most significant. Each pose a challenge as they are all necessary, but should it be ‘continue as normal’ or ‘change your approach due to high costs’?

The media is currently awash with answers to these sorts of questions, so which is the right way to go? There seems to be much talk of changing systems, whilst some ways may be relevant, I fear many could be knee jerk reactions to deal with the immediate increase in cost of inputs.

We’re in a time where farmers need clear, thought-out solutions, bespoke to their system and considering both short term and crucially long term impacts to the business. So, whilst broad suggestions of turning cows out, reducing concentrates, feeding cheaper raw materials, may well be the right decisions - are they choices that have been considered in the context of your own farm business?

Key to these decisions is to monitor and keep an eye on margins. Understanding the impact of the variable cost increase will have on your margin is important. Also, build in the milk price so your dairy can predict where the break even point is. You can then see at what level to keep production and how much you can afford to feed to maintain that level - whether that’s an increase or decrease. If you decide now to decrease production, make sure that if you look at it again in 3 months with a higher milk price, you don’t regret it. As we know, cows simply can’t turn the taps on and off.

At Advanced Nutrition we’re taking a pro-active approach - looking beyond adjusting ration input costs and analysing the effect that will have on short, medium and long term margins.

Step 1 is to analyse the effect that these increased costs will have on the total variable cost to produce a litre of milk. This isn’t just about adding the additional cost in, we must take account of the increasing milk price and as painful as it can be, we must also take into account the predicted milk price in the near future. While we can’t make decisions based on what the milk price ‘might’ or ‘should’ be, we do have to use it a measure to aid decision making.

Dropping production to save cost on fertiliser or feed can look attractive in the short term, and for some this may be the most economic approach, but for most it has the potential to increase overhead cost. In the medium and long term it may achieve no actual financial gain.

Of course, decisions will be farm specific and Advanced Nutrition customers can take great confidence from the fact that we are working hard to create real solutions to deliver the short, medium and longer term goals during these unusual times.

If you have any questions on the above, please just give myself or your local Ruminant Specialist a call.
 


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