The time is right to slash unprofitable costs

Tim Mackle

With the continued decline in milk price, DairyNZ chief executive Tim Mackle is calling on farmers to cut unprofitable production from their systems.

"These are extraordinary times. Open Country Dairy's milk price forecast is under $4 per kilogram of milksolids (kg MS) and all indicators show Fonterra will be forced to lower their forecast tomorrow. This price dip is lower and longer than anything we've seen in the last decade," says Mackle.

"Assuming a milk price of $4 for the average Open Country Dairy supplier, that means a potential deficit of around $250,000 for the year ahead."

"It is now a necessity for many farmers to do more than just shave costs. Removing unprofitable production from our systems is good for individual farm businesses, and will send the market a signal that New Zealand farmers will not produce marginal milk at a loss."

Tim says a zero-spend policy is not the solution either and outlines three stages to the rest of the season that need to be considered.

"Between now and balance day - around September/October when feed supply equals feed demand - is about setting up for spring," says Mackle. "Animals need to be kept fed and healthy, and pastures need to be kept growing. Cows will need minerals and in some cases, some supplement to achieve this. Using nitrogen fertiliser and keeping average pasture cover above 1800kg of dry matter per hectare will maintain growth rates."

He says between balance date and summer is the time to trust pastures to make milk and get cows back in calf.

"Given where milk price is now and the cost of supplements, it's hard to see how any supplementary feeding is profitable through spring. Lower milk production should be easily covered by lower feed costs. The drop in milk production will be minimal for many farmers as better pasture quality is maintained and less silage is made."

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 $4kg MS, supplements need to be purchased for less than $100/tonne DM to feed to cows getting adequate pasture," says Mackle.

"As summer arrives, when farms head back into a feed deficit, it's time to really capitalise on the lower costs achieved in spring. Unprofitable production at this time comes from cull cows eating expensive feed - this includes maize silage and wrapped bales grown on farm, as well as bought in supplement."

"We are likely to see farmers off-load excess cull cows earlier this season, particularly if dry conditions arise and that is always a risk to manage with an El Nino weather pattern looming."