Getting through the troughs

“Troughs in prices are not going to go away,” DairyNZ’s principal scientist, animal science, Dr John Roche, told a field day at the Northland Agricultural Research Station in Dargaville in late November.
“It’s not how fast you run or how far but how well you bounce.”
He said a demand-supply equilibrium for milk was a game changer in 2006-07.
“And we have another game-changer now with quotas being taken off in Europe,” he said.
“It takes a while to turn off the tap.”
Just 50 large-scale United States dairy farmers produced as much milk as New Zealand in 2010.
There could be fortnightly shifts of up to $250/tonne in the price of whole milk powder between two fortnightly GlobalDairyTrade events, when it was costing $1500/t to process milk into powder before it was sold. Farmers had to make sure their businesses were able to survive those type of fluctuations.
“A truly resilient business comes out of a shock in a better position,” he said.
“It learns from its mistakes and it’s better able to deal with the next shock.”
He said resilient businesses were profitable every year, environmentally benign, allowed adequate work-life balance and generated sufficient wealth in the good years to take advantage of opportunities in the bad.
At present he said an average Northland dairy farm was making a loss of $70,000 at a $5/kg milksolids (MS) payout.
“That’s not resilient, that’s a house of cards,” he said.
Work by former DairyNZ scientist Dave Clark showed low to moderate use of supplements led to a very resilient farming system. But changes from 2008 to 2013 showed 30% of farmers bought in more than 20% of their feed while 60% were buying in more than 10% of feed requirements. This included grazing off of young stock and any feed grown on a runoff.
From 2002 to 2012 Roche said the average national herd size had increased from 285 to 395 cows, but many farmers were milking 30% more cows and making the same money. Costs had gone up along with revenue, with overheads increasing from 20 cents to 40c/kg MS. Fertiliser costs lifted from 40c to 60c/kg MS, repairs and maintenance from 60c to 80c/kg MS and feed costs doubled from 80c to $1.60/kg MS.
Roche said Irish data showed as the amount of concentrates fed increased, pasture utilisation decreased. And data from the top 5% of mid-Canterbury farms, according to operating profit, showed a similar result.
“These are not average businesses, they are exceptionally run,” he said.
For every tonne of feed bought in there was a 1.2t decline in pasture utilisation, meaning operating profit dropped by $910/ha.
Roche said research in NZ and Ireland showed increased stocking rates leading to greater pasture utilisation could reduce nitrate leaching by 12kg N/ha.
But where intensification was fuelled by purchased feed those levels could be pushed up to between 15 and 20kg N/ha.
“The answer is to pour concrete and then your resilience is gone,” he said.
“Resilient systems have a strategic plan and have stocking rates right. And they limit exposure to purchased feed.”
Roche said limiting imported feed to less than 500kg/cow, or 10% of the cow’s annual requirements, gave farmers flexibility, as if the price doubled the system wouldn’t be broken.
At a response of 55g MS/kg drymatter (DM), farmers could only afford to spend 3.5% of the milk price they were receiving on imported feed.
The generally applied figure of an 80g MS response allows farmers to spend 5%, but recent Irish research had shown responses were only two-thirds of this level.
Roche said resilient businesses limited their exposure to external forces and, like corporate farms, used simple, repeatable systems.