CPI up 1.6% dairy farm costs up 10% a hectare

15/07/2008

Consumers and producers are counting the costs associated with rising inflation.

The Consumer Price Index  went up 1.6% in the June quarter and pushed inflation up to 4% while dairy farm working costs  rose 10% a hectare in the past year.

Specialist dairy farm and business management company, Farmright, surveyed 50 farms which the company manages and found that between 2006-07 and 2007-08, feed rose 25%, fertiliser 24% and freight and cartage 37% per hectare.

Farmright manager Jim Lee said fertiliser costs had gone up further since the survey was done, and wage costs were also creeping up on dairy farmers.

Wage costs only rose 3% last year, but newly negotiated contracts indicated that figure would increase sharply this year because of greater demand and a shortage of workers.

The shortage of staff is critical and it’s not helped by immigration policy which requries herd managers to have a bachelor’s degree or five years relevant work experience if they are applying for residency.

“We know from contracts being negotiated for new and existing staff being rolled over that there have been some increases.”

The cost of production, which included feed, run-off costs and cost of management, but excluded depreciation on the Farmright-managed farms, rose from $2.91 per kg of milk solids (kg m/s) in 2006-07 to $3.61 per kg m/s in 2007-08.

Mr Lee said drought and cost increases had an impact. But he said some businesses were now operating at higher cost structures than they would be aware of.

He believed some farmers would be faced with costs of $6 per kg, made up of $4 per kg farm input costs and interest costs of $2 per kg.

“Cost control and financial discipline are more important now than ever before,” he said.

It is easy to let costs get away when the payout is high but not so easy to rein them in when the price falls.

However, one of the speaker’s at last year’s South Island Dairy event (SIDE) conference told how he’d gone into dairying when the milk payout was $5.30 and the next year it went down to $3.60 – but they made more that season than the previous one because they were much more disciplined about containing costs.


Good Pay Out Takes 13 Seasons

12/06/2008

Mabel Howard is credited with the observation that there’s only one good job on a dairy farm and the bull’s got it. It was delivered during a parliamentary debate on the sorry lot of farm workers, but many sheep farmers have quoted her words to prove the superiority of their calling.

 

At least they used to, but as we’ve watched returns for meat and wool fall while milk prices stayed stable then rose, more than few of us reconsidered our opinion of dairying. Thirty years ago the Lower Waitaki Valley supported 10,000 sheep, today more than 40,000 dairy cows graze the same paddocks. My farmer was among those long established North Otago sheep and beef men who watched the invasion and began to wonder if there was more to life than meat and wool.

 

The calculator came out, experts were consulted, discussions took place, options were investigated, heads were scratched, conclusions were drawn and the decision was made: we’d stick to sheep. Time passed, more calculations were made, other options were investigated, experts were consulted again, further discussions took place, different conclusions were drawn and the decision was revised: we’d convert part of our farm to dairying.

 

That was the start of a very steep learning curve and one of the first things I learnt was that the bull’s job is no longer as important on a modern dairy farm, at least not in person (or should that be in animal?). Instead of putting the bull out and letting nature take its course, farmers now choose their sires from a catalogue and order straws of semen. This means the relationship between the cow and her mate is at arm’s length – the arm in this case being that of the artificial insemination technician.

 

The next thing I learnt was that building a diary shed is similar to building a house in that it always takes longer and inevitably costs more than expected. The site was supposed to be cleared in January but work didn’t start until April. Soon there were men everywhere – digging holes, delivering concrete, building and upgrading farm tracks to the standard the diary company demands for its tankers, and all needing to be paid.

 

In the middle of all these men was my farmer, writing cheques and wondering what he’d let himself in for while I kept strictly to my role of uninformed observer because the most important thing I learnt about dairy farming was just how demanding a life it was. Wool doesn’t go off if it’s not shorn today and, crisis situations like droughts excepted, there’s usually some leeway when sending lambs away; but cows have to be milked twice a day, every day from August to late May.

 

It didn’t help that the shed wasn’t finished when the first calves were born and while monthly milk payments made a pleasant change from the once or twice yearly cheques from meat and wool, the money coming in didn’t stretch to cover the bills that followed. Conversion is an expensive business and the costs didn’t stop there. Our advisors suggested the dairy unit would be more economic if we increased our herd from the initial 400 cows to 600. That in turn meant we needed more irrigation which necessitated building a dam.

 

Then we got tuberculosis and had to slaughter any cow which reacted to tests in case she was infected. The Animal Health Board pays for the cows but there is no compensation for the lost production. The tests aren’t 100 percent reliable and the cow carrying the disease which was infecting our herd was only discovered by accident a couple of years later when she dried herself off and was sent to the freezing works where they found her lungs riddled with the disease.

 

We regained our TB-free status but then struck a drought and ran out of water for irrigation so had to dry the cows off early. This spurred us to increase the irrigation which cost more and the increased herd numbers necessitated a second dairy shed and more staff which in turn led to the need for more accommodation. A further boost in cow numbers last year required more labour and another new house.

 

But at least this season the increase is production was rewarded by an increase in the payout. Not surprisingly that was followed by an increase in costs as the price of fertiliser, fuel, power, calf feed, silage, and wages went up too. However, in spite of all that it looks like, after 13 seasons, this will at last be the year when the really good job on the dairy farm is banking the money.

 


%d bloggers like this: