But achieve them it did and that’s given the team confidence it’s operating an efficient, resilient farm system that can keep costs to a minimum when payouts are low without jeopardising the farm’s longer term productivity, South Island Dairying Development Centre executive director Ron Pellow says.
“I think what we have here now is a system than can maintain a margin when payout is low and bank the profits when the payout is higher,” he says.
The high-performing, irrigated Canterbury dairy farm closed out the season with farm working expenses of $3.45/kg milksolids (MS) and production of 289,906kg MS to give an operating profit of just over $1000/ha based on a $3.90/kg MS milk price and a dividend return of 40c/share.
If the dividend return isn’t included, the operating profit margin sits at $300/ha – low but importantly still in the black. Milk production per hectare is similar to previous seasons – in 2012-13 it was 1876kg MS/ha – but it’s been achieved with 70 fewer cows in the past two years. The 555 cows peak milked this past season produced 522kg MS each.
The farm’s used almost half the amount of nitrogen fertiliser and less than a third of the bought-in supplement it previously used.
“We’ve increased our pasture harvested, pasture production, used less bought-in feed, and we’ve increased our milk production – that’s better efficiency,” Pellow says.
Pasture harvested by cows this season is calculated to be about 16.5 tonnes drymatter (DM)/ha, assuming 12 megajoules of metabolisable energy (MJME)/kg DM. That’s up on previous years, with about 14.5t DM/ha harvested in 2010-11.
But that’s not all when it comes to efficiency gains – the proportion of that feed being converted to milk is also growing.
Calculations taking into consideration the amount of energy required for maintenance, walking, change in body condition score and milk production show in 2010-11 61% of pasture eaten was going into milk – this past season it was at 69%.
“So for every kilogram of pasture on farm we’re now sending more of that out the gate as milk,” Ron says.
They’re also bringing less feed in the gate with just 126kg DM/cow bought-in as silage. Most cows continue to be wintered off.
In total cows were fed 403kg DM/cow of supplement through the season but 277kg DM/cow of that was home-grown silage made during feed surpluses.
The LUDF’s strategic objectives include increasing the farm’s profitability through productivity without increasing its overall environmental footprint.
The twin goals have become even more of an imperative in the last two seasons as not only have new nutrient loss limits been set by the regional council, but dairy farmers have had to contend with plummeting milk prices and volatile returns.
Ensuring the farm system is sustainable and able to withstand these challenges is a very real battle being faced by dairy farmers across the country and LUDF’s taken the lead and front-footed some of the risks.
The focus farm boldly took the leap and up-scaled the low-stocked efficient farming system being trialled at the Lincoln University Research Dairy Farm as part of the Pasture21 project.
For LUDF it meant cutting the stocking rate from 3.95 cows/ha to 3.5 and reducing nitrogen fertiliser inputs and bought-in feed.
With fewer cows, less nitrogen and less bought-in feed, costs were reduced but further ‘survival budget’ cost cuts were also made to withstand the sub-$4/kg MS payout.
They included a cut in pasture renewal and maintenance fertiliser with neither seen as sustainable beyond the very short term.
Fellow says cutting costs further as a strategy to withstand continuing low payouts and setting a target at $3.25/kg MS is unlikely to be the right strategic approach for the longer-term profitability of the farm.
“Looking solely at costs at the expense of income means losing sight of the main goal here and that’s margin per hectare.
“That’s what pays the bank,” he says.
LUDF’s margin is highly sensitive to production levels as well as costs. Last season its total farm working expenses were close to $1 million. At an annual production of 280,000kg MS the cost per kilogram of milksolids increases to $3.57.
Looking at it another way – a farm producing less milk per hectare must also have lower costs per kilogram of milksolids to maintain the same margin per hectare.
If LUDF produced the Canterbury average of 1450kg MS/ha rather than the 1800kg MS/ha it produced this season and gross farm income was standardised at $5/kg MS it would have to cut its costs to $3.14/kg MS to achieve the same margin as LUDF achieved with higher production.
“Have we found the sweet spot here? I’m not sure,” Pellow says.
But he does believe they’ve found a system and a cost range that allows them to tick a lot of the boxes.
Matching stocking rate to feed supply is key but they’ve also taken into consideration the high milk production they want per cow in considering stocking rate.
It means that rather than setting the stocking rate so that cows are harvesting peak pasture production and other tactics are used in autumn to either increase supply (by buying in feed) or reduce feed demand (by drying off or early culling), they’ve returned to harvesting surpluses as silage and transferring that home-grown feed into the autumn to maintain days in milk. The key is finding the right balance in terms of stocking rate and growing and harvesting as much pasture as possible with the fewest cows possible so more milk is exported and less feed is needed for maintenance.
LUDF had used up to 350 units/ha of nitrogen but with eco-N no longer available and environmental restrictions the annual use has been cut.
Timing nitrogen applications to maximise the response rate is even more important and on the irrigated property continuing to apply it through the summer has proved to contribute to this.
Some of that feed might end up being harvested for silage but that is more cost-effective than applying the nitrogen later in autumn to boost pasture growth, given lower response rates at that time and importantly, the higher risk autumn applications pose for nitrogen loss.
Growing more pasture
The LUDF farm team has grown and harvested more pasture this season and that’s thanks in part to its previous seasons’ commitment to pasture renewal and the inclusion of tetraploid ryegrass cultivars in its pasture mix.
That’s allowed farm manager Peter Hancox and his team to push the grazing round a little longer and go into higher pre-grazing covers without compromising pasture quality.
Eighteen of LUDF’s 21 paddocks have tetraploids in the mix and Hancox has found cows can go into covers of up to 3600kg DM/ha if needed and still graze down to a low, even residual of about 1600kg DM/ha.
The slightly longer rounds mean cows are going into pastures where the ryegrass is at the three-leaf stage rather than 2.5. That’s significant given 40-50% of the plant’s drymatter yield in the re-growth cycle is produced between the emergence of the second and third leaf.
Grazing rounds have been an average six days longer this past season which means each paddock has been grazed one to two fewer times. Managing pasture quality and maximising energy intake from pasture is the aim and Hancox says identifying surpluses early and strategic mowing ahead is one of the tools LUDF can use to manage quality with longer rounds.
While some debate the practice, the team calculates the two rounds of the farm mown over last season has been cost-effective, particularly given the high pasture quality and pasture intake that’s been maintained.
Heading into the 2016-17 season and a recently released forecast $4.25/kg MS milk price the management team prepared two budgets – one constrained, taking out a further 32c/kg MS or $90,000 of costs.
Those savings came from cutting out BVD vaccinations and dry cow therapy, not doing herd testing or DNA testing of calves, reducing replacements from 155 to 125, cutting bought-in pasture silage to 150kg DM/cow, reducing maintenance phosphate fertiliser and limiting regrassing to 5% of the milking platform rather than 10% with limited undersowing post-calving.
Pellow says the longer-term effects of some of these practices have been considered and the farm will go with a slightly more optimistic budget that maintains total costs just below $3.70/kg MS. At a $4.25/kg MS milk price that will allow a margin of $770/ha without any dividend income.
If dividend of 40c/share is included the margin is $1500/ha.
