Dairy farming for the new season will be all about keeping a lid on the costs of the three Fs – fertiliser, fuel and feed.
Each of these three inputs has been hit by huge price increases over the past 12 months.
With Fonterra announcing an opening midpoint ranged forecast of $9/kg MS, Waikato Federated Farmers Andrew Reymer said roughly half of it will be taken up with feed costs.
“That’s the relative ratio. If there’s an $8 payout you’re paying $4 and that’s pretty much what you can make money out of brought in feed for,” Reymer said.
And maize production costs are still uncertain, despite clear signals from contractors that they will be going up.
Dairy farmers are going to need that milk price to remain high as they navigate the season of high prices.
“Nothing is looking like it is coming down, so we are going to need that just to stay the same as we were in the last few years,” he said.
To that end, if farmers are making a margin at $8/kg MS, they should be able to make it at $9, he said.
Managing all of that was a challenge and he was looking at whether he should reduce his stocking rate or bring in more purchased feed.
“A $9/kg MS opening price is bloody good, but it’s certainly not a bonanza. Things are just as tight as it ever was,” he said.
“What can farmers do? It’s the usual things, where can you trim costs, do you need that amount of feed, is it cheaper to bring it in or to grow it on-farm?”
Feed was also tight and expensive in the region as it claws itself out of the drought, he said.
Fertiliser applied to pasture to boost its growth was still the cheapest source of feed, despite its high cost, he said.
High global grain prices will impact on maize grain prices, which will impact products such as calf feed.
“That’s certainly having a flow on effect,” he said.
On the flip side, the high grain prices are helping to prop up high global dairy prices, because it means Northern Hemisphere farmers cannot lift their production the way they were able to in the past
This inevitably led to global dairy prices falling as supply outweighed demand.
“The grain prices are doing us a bit of a favour internationally. I think I would rather have slightly higher grain prices and calf meal and a $9 payout rather than a flood of milk and a $7 payout,” he said.
The region has also had four dry summers in a row. Production costs along with supplementary feed costs had risen over that period.
The last time this occurred, dairy farming systems were not so reliable on that supplementary feed.
AgFirst consultant Tim Phillips said those systems did not rely on the palm kernel and imported grain and greater levels of fertiliser than they rely on now,
“We’re a more industrialised industry and when we have a global commodity shock which we currently have, we’re more exposed than we were. It’s not just a case of turning the tap off on these feed sources,” Phillips said.
Another AgFirst consultant, Phil Weir, predicted feed shortages across the country until next season’s maize is harvested – unless the region gets a good winter and spring.
“And with the costs meaning not having access to some of these imported feeds, there might even be animal welfare issues,” Weir said.
Further south in Canterbury, farm consultant Jeremy Savage says farm business operating costs have lifted by about 11% in the past 12 months.
One advantage New Zealand has is that its pasture-based system means it operates at a figure much lower than most other dairy producing countries.
From a NZ perspective, those South Island dairy farmers using grain as a supplement had to be wary of the ‘marginal milk, marginal cow’ fallacy, he said.
This occurs when feeding out 1-2kg of supplements per cow every month of the season and equates to 6% extra cows being run on supplements.
“If you’re running 600 cows, that’s 36 extra cows that you’re running,” Savage said.
He said the average running costs for a typical South Island dairy farmer on a per cow basis is around $1426 on a full labour system or $2.80-$3.30/kg MS.
That includes wintering, grazing, animal health, shed and power costs and interest.
The costs of feeding supplements to a cow at $550/tonne for grain come to around $6.60/kg MS when fed during the shoulders of the season.
“When you add the running cost of a cow, you’re looking at a break-even milk price close to $9.30-$10/kg MS,” he said.
“I’m not saying there’s no place for grain, but when you have a farm system that you’re feeding supplements all year-round, and even if it’s one or two kilograms, it’s highlighting that this little bit of milk is getting expensive.”
Savage also acts as the main advisor for the Lincoln University Dairy Farm. With such high supplementary feed prices, that farm’s focus was on utilising grass as well as possible, he said.
“We’re harvesting as much grass as we can and minimising supplements to keep our margins as high as possible,” he said.
The farm’s cost structures have lifted from $4.21- $4.82/kg MS for the 2021-22 season.
“We’re getting into the situation – as are many farmers in Canterbury – where they are feeding supplements all year round and their break even is $10/kg MS,” he said.
“Top farmers in the region can produce milk for around $5/kg MS but if 6% of their milk came from marginal milk, that cost structure lifts to $5.30. At 15%, it lifts to $5.75/kg MS.”
He suspected those farmers who use grain will try to absorb the extra costs as best they can and hope the milk payout remains high.
The “$400,000 question”, will be whether these high costs will be the new normal for farmers, he said.
“If we can sustain the milk price, we can sustain the cost structures,” he said.
While you’re here, here’s an Otago sheep and beef farmers’s take on why they’re reassessing the farm budget as costs rise.