Analysis reveals breakeven price

05 Jul, 2017 12:00 PM
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Consultant Alexis Perez says it is well proven that home-grown feed underpins profitability for Tasmanian pasture-based farm systems.
Dairyfarming business can be complex because there are many uncontrollable variables ...
Consultant Alexis Perez says it is well proven that home-grown feed underpins profitability for Tasmanian pasture-based farm systems.

Thirty-three Tasmania private datasets were analysed using Dairy Australia Dairy Base business analysis tool from some of my clients for the 2015-16 season.

Farm systems were diverse:

  • Dryland to 100 per cent irrigation.
  • Split or seasonal calving (autumn and spring).
  • Pasture harvested in the milking platform ranged from 7.6 to 17.4 tonnes DM per hectare.
  • Feed input ranged from 0.5 to 3.2 tonnes of concentrates per cow.
  • Feed per cow ranged from 4.5 to 6.8 tonnes of dry matter (DM).
  • Production per cow ranged from 334 to 666 kilograms of milk solids (MS).
  • Farm working expenses ranged from $3.71 to $6.20/kg MS.
  • Production ranged from 107,386 to 515,185 kg MS (average 267,000 kg MS).
  • Herd size ranged from 214 to 870 cows (average 550 cows).
  • The season brought diversity. It was a good spring with peak production on most of my clients' farm more than 10 per cent higher than the previous year. However, the summer was one of the driest in Tasmania history.

    Milk income was just above the 10-year average but impacted by the well-known issues regarding milk payment from milk processors towards the end of the season.

    Based on the datasets analysed for 2015-16, the minimum breakeven milk price for Tasmanian farmers is $5.37/kg MS.

    Breakeven milk price includes farm working expenses, interest, lease, principal, non-negotiable capital expenses, drawings and discounted other non-milk income.

    It is important to note that livestock income was higher than average ($0.75/kg MS) because farmers sold more cows than usual due to the drought and the low milk price forecast for the 2016-17 season. If livestock income is adjusted to the average 10 years for Tasmania based on kilogram of milk solids, the milk price that Tasmanian farmers need to break even is $5.73/kg MS.

    What should farmers be doing to control 'their destiny'?

  • Focus on home-grown feed to control cost. It is well proven that home-grown feed underpins profitability for Tasmanian pasture-based farm systems. Regardless of the level of concentrate brought in to the farm, farmers should be focusing on growing and harvest as much feed as possible. For this dataset, feed cost was 62 per cent of the total farm working expenses. Average cow home-grown feed intake was 65 per cent. The more feed grown on the farm, the less exposure to feed market volatility, and therefore the overall feed cost is lower.
  • Set the farm system/business to manage climate and market volatility. Managing summers and winter is getting more challenging. It seems that within a year the seasonal conditions can go from drought to flooding conditions. Therefore, setting the farm system to manage climate volatility will help to minimise risks in the business. For summer, having summer turnips and chicory, which are water efficient crops, can provide good feed. Investing in irrigation can also minimise the risk and control milk output and home-grown feed. For winter and early spring, consider drainage, calving and standoff pads to minimise pasture damage and maximise pasture grown. In terms of market volatility, talk with the milk processor regarding fixing some of the milk price. This could help with budgeting and reducing volatility.
  • Understand the business through continual analysis and monitoring. Dairyfarming business can be complex because there are many uncontrollable variables due to the nature of a biological and environmental system as well as market and climate volatility.
  • Understanding the business through analysis and monitoring of the farm system is crucial for profitable and sustainable agribusinesses. D

    *Alexis Perez is the principal consultant with Farm For Profit Agribusiness Consultancy in Tasmania. He can be contacted on mobile 0475 516 016 or email alexis.perez.fontes@outlook.com.

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