It's The Margins That Matter
OPINION: It appears to be difficult for people who haven’t tried to run a business to understand the difference between assets and cash.
One farmer told Dairy News that in July he and many others received no money from the company they supply, as the effects of the dairy crisis deepened.
Mackle says based on a milk price of $4.00/kgMS the average dairy farmer’s deficit will average $250,000 for the current season. But rather than cease spending farmers must spend wisely and strategically with the goal of returning to their present equity position as soon as the crisis is over.
Cutting spending that has a marginal benefit must be looked at closely, Mackle says.
“You can waste a lot of money chasing marginal production in a year like this, [so] we are helping farmers think through the opportunity to cut marginal production that is not making any money and in fact is possibly costing money.
“Interestingly, I have heard that some farmers are worried that cutting production might worsen their overall result. The key message is as long as you are reducing your costs at a faster rate than you are reducing your milk production then you are going to get a better net result. The more we narrow the gap the faster a farmer will recover to his current equity position.”
But Mackle does not advise cutting supplements altogether. Right now when many farmers are in a feed deficit situation, it is entirely appropriate to feed out to keep cows in good condition, he says.
DairyNZ has an online supplement price calculator which works out profitable supplement use based on milk price, post grazing residuals and supplement type. Dairy farmers can do the maths online, but with milk at $4/kgMS, farmers hould spend no more than $100/tonne to feed to cows getting adequate pasture, Mackle says.
“As summer arrives, when farms head back into a feed deficit, it’s time to capitalise on the lower costs achieved in spring. Unprofitable production at this time comes from cull cows eating expensive feed, including maize silage, wrapped bales grown onfarm and bought-in supplement. We are likely to see farmers offload excess cull cows earlier this season, particularly if dry conditions arise – always a risk to manage with an El Niño weather pattern looming.”
The DairyNZ Tactics campaign is this month offering one-to-one and group support to help farmers with pasture management through spring.
