Avoid falling into ‘no man’s land’

Life – financial life, that is – lurches from one monthly crisis to another on this dairy farm.

You get your monthly milk cheque and you are below your overdraft limit for about a week. Then reality kicks in and you have no money for three weeks. The milk cheque does not cover your monthly outgoings; investment and capital expenditure are things of a bygone era.

Not all dairy farmers are in this position. Some dairy farmers are on what are called aligned supermarket contracts. I imagine some of you have clients in this fortunate position. Their cost-plus system puts their milk price up to about 30p per litre, but that only accounts for about 20 per cent of milk. The rest of us are on prices south of 20p.

It feels a bit like you have been thrown to the wolves. You haven’t; you’ve been thrown to the vagaries of world markets – and it hurts.

It can’t go on as it is, because you have to keep borrowing more money to keep going. All you are really doing is borrowing up your balance sheet. The big decision for most dairy farming businesses will be how much of your balance sheet you are prepared to burn. The decision may well be taken out of your hands – how much of your balance sheet is your bank manager prepared to let you burn?

Farmers can do little about the price they receive for their milk, so it’s inevitable they try to cut the monthly deficit between outgoings and income I alluded to earlier.

If you produce about one million litres a year, the 10p or so difference between being on an aligned contract and the majority of us is £100,000 a year. So, whatever you do to cut costs, you are left feeling you are only tinkering around the edges. But tinker you must.

This brings me to insurance.

Covering bTB

Savings are often to be had with insurance. Some people I know move their insurance business every three years to take advantage of the discounts. But it isn’t as simple as that – there’s bTB insurance to consider.

Let me make it clear at the outset – if I was an insurer, there’s no way I would want to insure someone against having a bTB breakdown.
I don’t know of any insurer looking for new bTB business and I don’t blame them.

Nothing much is going on in the world of bTB eradication that’s going to make a meaningful difference soon.
The situation, hitherto, has been you could renew an existing bTB policy. If you had a bTB policy and wanted to move it to another insurer, they would honour the existing policy and take it on with your other policies.

Not any more. You can move your total farm insurance business, if you want to, but you lose your bTB cover. It’s a big decision.

My bTB insurance cost is nearly a four-figure sum. If I move, I save that and more besides. As it is, my insurer has come up with a competitive quote (a sort of retained business premium) and I’ve dumped the bTB insurance.

We haven’t got bTB; we try very hard to make sure we don’t get it and, if we do, that could be enough anyway. Who wants to milk cows at a loss and contend with bTB as well? Not us.

Management split

I read an article in Veterinary Times’ 9 May issue (VT46.18), about managing freshly calved cows, with great interest – in particular, about managing a potential intake deficit during the immediate weeks post-calving.

It’s possibly best summed up by attention to detail. You know the cow could suffer appetite loss at this critical time, you know you need to treat the cow to the best of your ability and you are aware of the plethora of things that could go wrong if you don’t get the management right. I’m interested in the wider implications of this because, as we go forward as a milk-producing industry, there will be a split of management.

The dairy units that will survive in the future will fall in to two camps. “Grey” areas of management styles will always exist, but I think some herds will aim for high yields per cow, say, 10,000-plus litres.

For these, attention to detail and management of the freshly calved cow is essential. Every detail of the cow’s life, from breeding a cow that will flourish in the system it will spend its life, to its management when it gets there, has to be of the highest order.

At the other end of the management spectrum will be the lower yielding “grazing” herds. They will look to optimise the amount of milk they can get from forage and grass. Once again, the management has to be of the highest order, but there is little individual cow management; it’s a case of herd management. The herd calves in as tight a pattern as it can achieve and it goes dry together. They are usually herds of cross-bred cows.

The breeding policy is usually very simple. I know of farms that have a horizontal white line painted on the wall where AI takes place. If a cow is taller than the white line, they put a Jersey bull on her; if she is below the line, they use a black and white bull to make her progeny a bit taller.

Also, because they are not looking for high yields, most farms will achieve what they are looking for by breeding bulls from their own herd or using cross-bred bulls to good effect. Because cross-bred cows produce high-constituent milk, this style of management is best suited to produce milk for manufacturing processors – particularly cheese manufacturing – and most of these facilities tend to be in the large milk fields to the west.

The dilemma for dairy farms of the future is which style of management to adopt. Herds that fall into the aforementioned “grey” area – those that produce milk in the midlands, for example – may find it difficult to find a buyer for high-constituent milk produced to a spring-biased profile.

There is a danger some will fall between the two styles of management. They could end up with herds that produce 7,000 to 8,000 litres per cow, with costs of production similar to those producing 10,000 litres or more, and they certainly won’t be anywhere near the low costs of production of the grazing herd either.

They could well end up in a sort of “no man’s land”, where it will be difficult to survive.