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10 Jun, 2022

Dairy Farm Production Costs in 2022

Ifac, in conjunction with the Teagasc/Kerry monitoring group and supported by Bank of Ireland, is working with a group of Kerry Coop farmers who are actively reviewing their financials and budgeting accordingly.

The group have all completed their 2021 financials and budgeted forward into 2022, with all these budgets being reviewed again at the end of April based on the first 3 months’ actuals. Ifac are using their FarmPro service to work with these farmers.

Below are the findings to date for the group and their plans and thoughts for 2022. 

What can dairy farmers do to offset the impact of rising costs?

Based on financial analysis undertaken with several Demonstration Farms, farmers need to focus on the flowing areas:

  • Fertiliser: Calculate how much fertiliser you need based on last year’s actual usage. The target for this year is a reduction of 10% along with maintaining P&K requirements.

  • Slurry: Make sure you get the most from the natural fertiliser sitting in your tanks.

  • Grass. Measure to identify fields where fertiliser usage can be reduced.

  • Reseeding: Is it time to look at clover and multi-species swards?

  • Stock: Is your stocking rate too high for your grass grown/utilised?

  • Feed: Use last year’s actuals to calculate how much you will need this year.

Target reductions of 10% - growing an additional 1 tonne DM/Ha grass

How many animals will you carry over the winter? Start planning now.

  • Technology: GPS supports the more accurate spreading of fertiliser and sprays.

  • Financials: Review yo.r 2021 accounts ASAP. Do you have a tax bill due in October? Budget for 2022, will you have any cashflow issues? Can your farm “carry” the increased costs? 

Budgeting and risk management have never been more critical, with cost inflation set to hit farm incomes hard this year. Stocking levels, fertiliser and feed costs will require ongoing monitoring throughout the year.

Rising input costs are the most significant concern on dairy farms this year. Fertiliser prices have almost tripled since 2020, feed costs are up 20–25%, and farmers face further energy price hikes in the coming months. To assess the impact of cost increases, we analysed the budgets of five farmers, comparing 2022 forecasts to 2021 actual accounts. Budgets were based on no increases in milk yield. (Group would have also allowed a standard 5% inflation increase on all fixed costs - note inflation currently at 5.7% nationally).

2021 (Actual) Per ha €2022 (Budget) Per ha €
INCOME
Milk4,5514,935
Livestock456494
Other346265
TOTAL INCOME5,3535,660
COSTS
Veterinary, Medicines, AI367384
Feed824895
Fertiliser416788
Other1,8241,969
TOTAL COSTS3,4314,036
CASH PROFIT1,9221,624

Note: The tables show whole farm data per ha. The average milk price was €0.41 for 2021 while the budgeted price for 2022 is €0.44. Average production cost per litre is €0.30 in 2021 and based on same production in 2022 and budget costs circa 36 cent per litre. 

Overall, the accounts show a strong performance in 2021. Budgets for 2022 anticipate a cost increase of €605 per ha, up 17% from 2021, while profits are expected to fall by €298 per ha as input costs rise and milk price increases (no increase allowed for output increases). However, a word of caution, 4 of the 5 had more planned herd expansion based on stocking rates and grass growths. The group intends to increase grass grown from 12t/ha to 13t/ha in 2022. If they were to increase their milk output sustainably through grass growth and decrease feed usage, they could drop their cost per litre by up to 3 cent per litre and therefore increase profits per ha by circa €200.

Farmers in the group will need to conduct a detailed review of their budgets at the end of Quarter 1 as adjustments are likely required. Any change in feed/fertiliser requirements will significantly impact profitability, so budgets will require very close ongoing monitoring in the coming months.

Feed

Better grass growth and utilisation - a key performance target for our monitor group - should help offset the impact of rising feed costs. The group aim to increase grass growth by 1 tonne per ha on average to 13 tonnes in 2022. Consequently, their 2022 forecast anticipates just a 9% increase in feed costs per ha as they reduce feed per cow by 10% (1122Kgs/cow in 2021 with a reduction of 112Kg per cow in 2022). However, failure to hit the reduced feed usage target this year could see farms incur the full price increase of up to 25%; this would equate to almost a further 1.2 cent a litre and rise the average cost per litre to over 7 cent on 2021.

Fertiliser

Farmers in the group carried over some fertiliser stocks from last year. 209Kg ha was used in 2021 with plans to reduce usage by 20Kg due replacement value of clover established in 2021. This will offer some protection against rising costs. Therefore, the budget only allows an 88% increase in cost, whereas the real increase based on the same usage will be circa 120%.

Choosing the right fertiliser products will be more important than ever this year. Using higher P&K compounds and maximising Protected Urea in fertiliser plans can save up to €50-€60 per acre. On a farm of 100-acre farm, this would amount to a saving of €6,000 per annum.

Need help?

Good planning and effective management are more important than even in turbulent times. Your accountant and Teagasc can help you identify risks and take the necessary actions to protect your business. Now is the time to review your budget and check that you base your decisions on accurate, up-to-date information and forecasts.