Tight financial control can ease worries include ensuring all monies due are collected as quickly as possible, including any VAT refunds due. be Louisa Sercom With income squeezed it will really pay to keep a close check on the finances according to UK FBA Manager Louisa Sercombe. Working with farms across the country, it is clear that the current trend in prices is having a big impact. The farmers who are best placed to manage their way through have got a tight control on the financial side of the business. Rather than waiting for the year end to get a breakdown on performance, they make sure they have detailed information to hand to guide decision making. Second there is a better understanding of how well the individual enterprises are performing. Timely gross margins can give an invaluable base for farm planning. Is it worth expanding an enterprise? Would more cows pay? Can savings be made on heifer rearing? Was growing wholecrop a good move? Without detailed financial records it is hard to make a balanced judgement. In addition to keeping the books up to date and providing accurate management reports they can help keep a close eye on day to day management. They can manage VAT and operate payroll systems and help with livestock records and other statutory paperwork. They can help ensure your office is a source of management information to help control the business promar the standard Winter2014 Perhaps most important is the peace of mind in knowing that you can concentrate on the practical day to day farming, safe in the knowledge that the finances are being kept up to date and you haven’t got to spend time in the office keeping on top of everything. The Promar Farm Business Secretaries work with a huge diversity of farm businesses to ensure that they have the financial data they, their bank, their accountant and their consultant will need to ensure the business is in good shape. Accurate and up to date financial information is always important but never more so when there is downward pressure of prices. Reduced cash inflow means things can soon become tight but at the same time the demands are increased to drive efficiency out of the farm and an increased risk that the financial management will fall behind. Strong financial management can bring some huge benefits. First and foremost is the need to manage the overdraft and creditors so that the true cash position of the business is understood. This can also Focus on technical performance can reduce impact of price fall All our secretaries have a background in farming either through education, living or working on farms or a combination of both. They understand the importance and value of timeliness of information and the demands outside the office. They appreciate how decisions outside the office can be strongly backed up with information produced inside the office. Published by: Promar International, Alpha Building, London Road, Stapeley, Nantwich, Cheshire, CW5 7JW. Tel 01270 616800 • Fax 01270 616704 • www.promar-international.com Put yourself in your staff’s shoes Hutches bring many benefits Regular feeder calibration pays Planning next year’s forage should start now Tight financial control can ease worries A Company Riding out the storm No one can deny that the last six months will have a significant impact on the dairy industry. The cut in milk prices has affected every dairy farmer, and everyone else working in the dairy farm sector. Yet production continues to rise and a recent Promar survey confirmed that the majority of dairy farmers will still be looking at options to expand. UK production was 8% up to the end of August and the EU is predicting 3.7% higher output in 2014 compared to 2013. And this is before the removal of quotas that could signal further increases. This extra production is being produced against a background of a market facing reduced demand which will make increasing prices something of a challenge. However, the GDT auction prices rose recently by 1.4% which might suggest that prices may at least have bottomed out. Against this background farmers still have to plan and run their businesses. I think it is important to remember that dairy farming is a long term business and has always had to ride out fluctuations in fortunes – and in most cases done so successfully. The annual production cycle is a year. It takes around three years from an insemination until a heifer enters the herd. Forage planning today will affect production right through to the end of next winter. To weather a price decline such as is being experienced, it is vital to take a long term view of where the business needs to be and the size, structure and level of technical performance required to 2 achieve the necessary level of financial results. Then it is necessary to identify the incremental changes that together can help to deliver improvements in all aspects of performance One bit of good news is that feed prices are generally declining, and while these will not offset the entire fall in milk prices they can help to soften the short term blow. Dairy farming is not a business that can be managed based on short term decision making. It needs long term targets that reflect the nature of the business. At Promar, we work with customers reflecting the considerable breadth and diversity of dairy farms in the country to help develop and implement the plans that can deliver sustainable dairy businesses. We also work to help identify the opportunities to improve technical performance. In this issue of the Standard we look at factors affecting all dairy businesses which are highlighted in our unique Radar analysis. If you want a free Radar assessement of your business, call us on 01270 616800. James Dunn Managing Director James Dunn Focus on technical performance can reduce impact of price fall Andrew Watson Lancashire base consultant Andrew Watson considers what steps can be taken to help offset the consequences of the current low milk prices. No-one should be surprised by milk price volatility. It has been a fact of life now for many years and it is something we have been helping clients insulate their businesses from. Figure 1 shows the milk price over the last seven years along with three different lines representing commonly reported levels of cost of production. At 26ppl farmers will have made a positive return 80% of the time. At 30ppl it is as very different picture. It is vital farmers know exactly where they stand and this is the starting point for plotting a route forward. What is the breakeven point for your business? Figure 1 - Average GB Farmgate price The key lesson is that there is no single solution. Each farm is different with its unique set of circumstances and it is vital to develop a plan which acknowledges those circumstances and the aspirations of those running the farm. The reality is that in the vast majority of cases, doing nothing is not an option. Changes have to be made both short and long term to develop more sustainable businesses. This will involve considering what is the best shape for the business going forward. What is a realistic and appropriate herd size for the farm? Will the current facilities cope or is some investment needed? What are the realistic options for investment and development of the unit and how will these be affected by issues such as succession. Figure 2 - Milk price:feed price ratio While long term plans are being developed it will be vital to review technical performance to identify any opportunities to drive margins in both the immediate short term and longer term. Our experience is that in the vast majority of cases it is possible to identify scope to reduce costs and/or raise output. Is anything holding back yield? A whole host of factors can prevent cows milking to potential and so reduce margins. The good news is that many of them can be quickly and cheaply rectified. Looking at the average and top 20% of farms on Milkminder there is a big difference. The challenge on every farm is to move performance into the top 20%. Consider your contract You can’t affect base price but look to maximise bonuses for hygiene, milk quality and for the production profile. Many contracts are paying more for butterfat so it may make sense to try to increase the butterfat percent but do the sums first. Will modifying the diet to chase higher fat actually pay or will it just increase costs for little or no return? Monitor feed costs Feed costs are over 40% of production costs so a good place to start if you want to try and cut overall costs. Prices are easing back and they should allow a 1.5ppl saving compared to last year. While this won’t offset the total milk price drop it will be a good start. Figure 2 shows the milk price: feed price ratio for the last six years and predicted for the next year. The ratio is predicted to remain strong despite lower milk price so this is an opportunity, but don’t chase/buy milk. It will be vital to monitor margins and feed cost per litre closely. Cow comfort is crucial. Cows need clean comfortable beds and the longer they spend lying down the better. Blood flow to the udder increases by 30% when a cow lies down and it is estimated that 25% of milk yield is directly related to how comfortable cows are. Make sure you have enough cubicles. The absolute minimum is one cubicle per cow but it has been shown that having 5% more cubicles than cows can improve production. Take a look at cow flow. Research suggests that cows should spend no more than three hours a day going to and from milkings. For cows milked twice a day this means 90 minutes maximum away from the bedding and feeding areas at each milking while for herds milked three times daily the maximum is one hour per milking. It is estimated that for every hour per day above the three hour target yields will be depressed by a litre per cow per day. In addition there is a reduction in the expression of heat behaviour and an increase in the incidence of lameness. Review mastitis protocols Have you got protocols in place for preventing mastitis and treating any cases that occur? Good protocols will ensure consistent management and help reduce the impact and costs. Fewer mastitic cows also make for easier, faster milkings and better staff morale. Sufficient feed access is crucial as cows need to eat for about 5 hours a day, typically made up of 8-12 feeds. Anything that prevents this happening will reduce intakes and yields. Look to provide a minimum of 46cm of trough space per cow on a total adlib feeding system. The key is to focus energies on what you can affect. Small incremental changes can soon add up. Setting targets and improvement objectives for as many areas of management as possible and following them through will help insulate against current low prices and put the business in better place when prices rise again. 3 Put yourself in your staff’s shoes Doing the job day in, day out they will notice problems and opportunities to improve, so allow them to contribute their ideas which might have a big impact on yields, margins or cost saving. Make time to talk and listen to staff. This can be an informal discussion during a coffee break but will be time well spent. David Rhodes Midlands based consultant David Rhodes believes that focussing on motivating staff could be an essential step in developing a sustainable farming system. How do you think your staff are feeling at the moment with all the talk of reduced margins and downward pressure on profits? My experience from nearly 25 years as a herd manager is that they will probably feel vulnerable and possibly demotivated, yet they can be a major asset in driving efficiency from the business. Their attitude and enthusiasm will have a significant impact on how well tasks are carried out and they are best placed to spot problems and suggest ways to improve performance and reduce waste. With demotivated staff attention to detail and enthusiasm will soon wane. As farm teams get larger and more specialised, it is vital to invest more time in managing staff effectively to drive overall performance. Communication is key Do your staff know what your objectives are and exactly what their role is? All too often staff do not understand what the business is trying to achieve and how they contribute to this. So take the time to make sure they can buy into what you are trying to achieve and can take ownership of particular aspects. Communication is a two way process. Encourage staff to come forward with ideas for how performance can be improved. 4 Set targets Targets are a great motivator because people like to try and achieve or exceed them and they will respond to the challenge. Make sure the targets are meaningful to the business and are achievable. Ensure they are commonly understood and that performance against target is regularly updated. A simple wipeboard is a cheap and effective way to do this. If targets are not being achieved talk about what might be done to rectify the situation. My experience is the reverse. People appreciate the investment in training and they remain committed to the business that is investing in them. many benefits We went for a combination of 10 single hutches and two multi-hutches that can each hold 5-7 calves. Some training will have a direct impact on costs and performance. For example, a foot trimming course can help reduce the costs associated with treating severe lameness while making cows more mobile which is known to improve intakes and production. Let them focus All too often I find that core people get taken away from their primary role to do other less skilled tasks. For example, the herdsman who gets put on a tractor, grain or straw carting. If someone is a herdsman employed to manage the cows let them focus on doing that job to the best of their ability, free from distractions. The benefits can be considerable. Getting your team motivated and committed could have a big impact on how your herd performs so it is well worth investing the time in managing them. Invest in training As herds get bigger it becomes important to delegate more. The better trained your staff are, the more motivated they will be and the more you can delegate. Find out if there are specific skills they want to learn and then arrange training. I have been told that ‘If I train someone it makes them more attractive to other farms and they will leave’! Hutches bring James Berry and Tony Farthing Jonathan and Katie Guest Modest investment in calf rearing facilities is helping one Wiltshire farming family move their business forward. Farming at Manor Farm, Avebury brings some particular challenges for Tony and Judy Farthing, who run the tenanted farm with their daughter Katie and son-in-law Jonathan Guest. The farm is in a world heritage site and includes the prehistoric Avebury stone circles. This makes developing the farm particularly difficult. The farm is home to the 160 head all year round Avebury herd of pedigree Holsteins which averages 8,300 litres on a system based on grazing in the summer and a TMR diet in the winter. “Following discussions with James we decided to look at changing calf rearing as this would release potential space for more cows.” Calves were being reared in an old cubicle building. Being right next door to the cows with shared air space meant this was not an ideal location and respiratory problems were an issue. It was also a labour intensive system. James Berry suggested moving the calves into hutches and refurbishing the cubicle building. This would allow the herd expansion, simplify cow grouping and improve calf management, while avoiding potential planning issues. Katie, who had taken on responsibility for calf rearing, investigated the options, looking for a flexible system which was easy to manage and use, eventually settling on a system from Holm and Laue. “We wanted to be able to split the milking herd but the layout of the cubicles made this difficult,” explains Tony Farthing. All calves are fed colostrum before moving into individual hutches. They are fed on cow’s milk, straw and calf rearer and have access to fresh water from day one. They will typically move into the multihutches at around four weeks old provided they are eating solid food and drinking water. They are moved from the hutches at weaning. “We have already seen big benefits,” Katie continues. “Calves are stronger and healthier and we are seeing fewer respiratory problems. Mortality has dropped by two percentage points. The first calves we moved out of the hutches were as big as the last batch from the old system that were two months older! As we are looking to calve at two years old, this better early growth is really important and will help us expand the herd. “The hutch system cost around £12,000 and will be used to rear around 130 calves in 6.5 batches per year. They are guaranteed for 10 years so this will work out at around £10 per calf. The focus has been on improving performance from the existing herd and the family are supported by herdsman Richard Peer and foreman Peter Steven. The herd is bred by Genus ABS RMS and the calving interval has been tightened by 30 days in a year. Working with Promar consultant James Berry, the aim had been to look to expand the closed herd to 180 cows while allowing more options for cow grouping, but putting up a new building was likely to prove difficult. “The hutches are all really easy to clean and have a gate so there is no need to climb in and out which makes management easier. They can be bedded from the back through a hatch which also improves ventilation. The multihutches have individual buckets which make it easy to check all calves are drinking and they can be moved out of the way for easy cleaning.” “With the new calf system working well we can now focus on sorting the cubicles, increasing cow numbers and further improving milk output.” “Being on an exposed site we needed to provide adequate protection,” Katie explains. “The system includes a moveable veranda which offers more protection from the elements and makes for a more pleasant working environment. 5 Planning next year’s forage should Regular feeder calibration pays start now Ensuring accurate allocation of feed is vital to keep close control on the major cost of milk production, but as Andy Taylor, consultant in Cheshire, explains many parlour feeders may not be feeding what is expected. When is the last time you checked that your parlour or out of parlour feeders were feeding what you expected or what the computer is programmed to feed? As with any mechanical device, accuracy can change with time. Furthermore, the density of different feeds can vary, affecting feeder accuracy. If feeders are dispensing too little, cows will be underfed, milk poorly and potentially suffer from lower fertility. If they feed too much, your costs will increase with no guarantee of an economic yield response and an increased risk of problems such as acidosis. All too often it is taken for granted that the feeders are accurate and left unchecked, but in the current economic climate it will pay to make sure your cows are getting the feed expected. A client of mine in Cheshire installed new parlour feeders earlier this year. When we carried out a regular spot check a couple of months later we found that more feed was being used than expected, around eight tonnes per month. When we investigated further we found that on average the feeders were dropping 30% more than expected – a huge difference made worse by a change in the parlour concentrate since the feeders were originally installed. In one month, the cost of feeding inaccuracy was over £1800 which would have had a huge impact on margins if left uncorrected. Check accuracy regularly It will really pay to keep a close eye on the accuracy of feed allocation. Correct allocation will reduce costs and improve cow health and performance. The accuracy of dispensing of parlour and out of parlour feeders should ideally be checked every month as it is not unusual to see inaccuracies of as much as 10% developing in just a few weeks. Feeder accuracy should also be checked every time the formulation of the compound is changed as this will affect the density of the product. It will only take around an hour to check, adjust and recalibrate feeders but the benefits can be considerable. Milk from forage continues to underpin higher margins per cow, and as Yorkshire consultant Alistair Hugill explains, it pays to start planning next year’s forage production sooner rather than later. Andy Taylo r And don’t forget to check the weigh cells on the diet feeder as inaccuracies here can have a similar impact. With tonnes of silage being dropped into feeders followed by large quantities of other feeders, it is not unusual for the weigh cells to become inaccurate over time which can become significant, especially where smaller quantities of more expensive ingredients are concerned. Again, making the time to check the weigh cells monthly will be a sound investment. Finally, always check feed usage against the invoices. Are you buying what is expected? Do loads last as long as expected or are you getting through feed too quickly? Checking invoices can help highlight possible problems with feeding accuracy. Keeping tabs on feeder accuracy will be one way to help maintain yields and margins this winter. Analysis of Promar Milkminder data shows that producing more from forage can have a significant impact on margins. The table compares the average results with those of the top 20% selected by milk from forage. The top 20%: • Produced 800 more litres per cow from forage • Achieved 40% of total production from forage compared to 27% • Had a 13% lower feed rate per litre • Had a feed cost/litre 13% less than average from a similar cost/tonne • Achieved a higher margin per litre and similar margin per cow despite producing 470 litres less per cow Perhaps most significantly, by producing more from forage the top 20% are better insulated from fluctuations in both milk and feed prices. To produce 40% of milk from forage, the average Milkminder farmer would have to produce two litres more from forage per cow per day, which equates to less than 1kgDM extra forage per cow per day. For the average 182 cow herd that adds up to around 66 tonnes of additional forage dry matter over the year. But it could generate an additional £18,000 in margin. Farmers who successfully produce more from forage will have plans for grazing and conserved forage with targets, and they will review and modify the plan as the season unfolds. For example, in the last year this might have involved taking paddocks out of the rotation when grass growth was vigorous to maintain grazing quality and increase silage production. 6 Alistair Hugill Promar Milkminder Promar Milkminder Difference top 20% by milk average from forage Cows in herd 193 182 Yield per cow (L) 7608 8074 -466 Milk from forage per cow (L) 3005 2209 +796 % of total production 40% 27% +13% from forage (%) Concentrate use (kg/L) 0.29 0.33 -13% Purchased feed cost/litre (P) 7.28 8.58 -13% Margin per litre (p) 25.96 24.75 +5% Margin per cow (£) 1975 1998 -1% Start planning now It is important to start developing a forage plan as soon as possible, beginning with a review of current performance. What is your current milk from forage and how much forage was produced? What production from forage will your current silage stocks support. Then consider targets for next year for both milk from forage and forage production? What grazing areas will be required and how much silage do you need to make to achieve the target production? These will allow you to develop a management plan to produce the target production while you still have time to influence production. • Now is the ideal time to take soil samples to ensure that nutrient levels are as required to maximise potential growth. Fertiliser purchases can be made to address any deficiencies • Grazing infrastructure should be reviewed. Are paddocks the appropriate size? Is access suitable for extended grazing? Invest in a rising plate meter so you can measure covers and improve grazing supply over next summer • Cropping policy can be assessed to ensure total silage output will hit target. What acreage of first and second cut are required? What contingencies can be made in the event of a late season to ensure total output is achieved? How much maize is required and which variety will give the best combination of dry matter production and energy content? Is wholecrop an option? • Talk to your contractor sooner rather than later so he understands your objectives and the acreages that will be cut. The relationship with your contractor can have a huge impact on your forage production Taking the time to make a detailed forage plan will help underpin production and margins next year and ensure milk from forage is maximised. 7
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