Managing a business in an era of volatile milk prices

Steven Millar, NIIAS Chairman; Morgan Sheehy, Devenish;  Paul Vernon, Glanbia Cheese; and Dr Sam Kennedy, NIIAS President.
Steven Millar, NIIAS Chairman; Morgan Sheehy, Devenish; Paul Vernon, Glanbia Cheese; and Dr Sam Kennedy, NIIAS President.
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The Northern Ireland Institute of Agricultural Science (NIIAS) recently held a breakfast event on the theme ‘Managing a business in an era of volatile milk prices’.

The event, which was sponsored by John Thompson & Sons Ltd and the IFJ, saw the chief executive of Glanbia Cheese, Paul Vernon and Morgan Sheehy, director of ruminant division, Devenish Nutrition as guest speakers.

Paul highlighted that much of Glanbia’s ongoing success could be attributed to a “relentless focus on costs and innovation” with investment in new technologies and products being key, and a cost efficiency focus applied whether milk prices are high or low. Glanbia benchmarks its own processing plants with others to assist in the control of costs and Paul insists on “driving plants hard”.

He felt that milk prices are yet to bottom out with increasing production on one hand and falling demand in China and the Russian ban on EU agricultural products. In the long term he believes that milk production will migrate to regions which are able to produce milk most efficiently and mechanisms are needed to increase efficiency along the entire supply chain. Twelve months ago when milk prices were high, retailers and customers were at the sharp end, but the present low prices have now placed producers and processors in a weak position.

Paul agreed that hedging or linking milk price to feed costs could be potential options to alleviate some milk price volatility, as volatility is of concern to everyone in the supply chain. However he stressed that it would be vital that milk purchasers are ‘bought in’ 
to the idea, but there has been an increased interest from customers in ‘fixed price’ models.

Morgan Sheehy focused on efficiences at primary producer level. He highlighted that over the last 30 years there have been approximately 13 major world milk price fluctuations, but producers within the EU have been largely protected from their impact until more recent times.

In future these milk price fluctuations can be expected as often as every 18-24 months. Morgan identified the ability to spread profits and losses across financial years and the discipline to hold profits from good years in reserve as key tools in managing these fluctuations.

Morgan stressed the need to keep robust farm management figures - and to benchmark where possible. A study in the south of Ireland found that 60% of farms were not keeping records that were crucial to their business and many farmers simply do not know their costs of production. Benchmarking has revealed huge variations in profitability with data showing a gross margin difference of £2,363 per cow between some dairy farms in Northern Ireland.

Morgan outlined three legs of the farm business “stool” which he believes are critical to any livestock farm: Health, farm management and nutrition.

He questioned should farmers really want a heifer calf from a high yielding “good” cow which has fertility problems?

He also highlighted the benefits of maximising yield from forage with Teagasc figures from 2010 suggesting that every tonne of dry matter (DM) of forage could be worth up to €160. With the average DM here being 7t per Ha and the top 15% of producers getting 15t + per ha, the difference could be over €1,000 per Ha.

Morgan outlined that extra meal feeding is also shown to have significant benefits in terms of milk produced vs. the costs of the extra feed, but this should only be considered if the cow is able to respond to extra meal feeding, i.e. her genetics and current health status.

Morgan stated that 80% of dairy cow problems can be traced to cow management within the three weeks before and after calving.

In summary, Morgan stressed that farmers must have the figures to show where their business is currently at and to have a plan to know where they want to get to.