Dairy NZ is warning farmers to carefully manage their spending with a looming season deficit of up to $250,000 for an average property.Chief executive Tim Mackle said it was vital that farmers cut unprofitable production during what he described as “extraordinary times”, but that did not mean they should adopt a “zero-spend” policy.
They needed to adopt a three-stage policy.
“At the moment there is poor pasture cover in areas like the Waikato because of frosts so farmers should be feeding supplements until grass growth catches up or exceeds demand.
“But once cows are getting adequate pasture, the response to supplements is much lower, they’re not as hungry and you end up substituting pasture for supplements,” Mackle said.
“Once the grass takes off, the key message is that you have to trust it.”
He also advised farmers to use urea wisely to get the best optimum response.
“What we are talking about is lowering the gap between what it costs to produce and what they are earning.”
If the milk payout was going to be $4 per kilogram of milk solids, then supplements need to be purchased for less than $100 per tonne of dry matter to feed to cows getting adequate pasture.
At present palm kernel extract was the cheapest supplement, but it cost more than $200 a tonne.
“So at the moment it’s OK to use supplements but once pasture growth has caught up they should be pulling them out,” Mackle said.
He said between balance date and summer was the time to trust pastures to make milk and get cows back in calf.
Open Country Dairy’s milk price forecast is under $4kg/ms and all indicators show Fonterra will be forced to lower their forecast on August 7, making this announcement critical for farmers. The price dip was lower and longer than anything seen in the last decade, Mackle said.
Assuming a milk price of $4 for the average supplier, that means a potential deficit of around $250,000 for the year ahead, he said.
“If that’s the case, what do we do? The first thing we do is cut unprofitable production and that’s the most important response ahead of next week’s announcement.”
This had to happen regardless whether the forecast dropped or not, he said.
Not only was it good for individual farmers not to over-produce, it also sent the market a signal New Zealand farmers would not produce marginal milk at a loss.
Mackle recognised farmers may be nervous that cutting milk production could result in a bigger deficit.
“It certainly depends on how you do it and there are a number of fixed costs you have to recover, but there are variable costs. The first place you need to look is feed that you don’t need to buy because you can grow it from pasture.”
The tactic worked if costs were cut at a faster rate than the drop in milk production, he said.
The other period farmers might need to use supplements was after Christmas when there might be a drought.
They should also be looking at culling cows if a deficit starts to loom.
“As summer arrives, when farms head back into a feed deficit, it’s time to really capitalise on the lower costs achieved in spring. Unprofitable production at this time comes from cull cows eating expensive feed – this includes maize silage and wrapped bales grown on farm, as well as bought in supplement,” Mackle said.
For more information on DairyNZ’s Tactics campaign and the Supplement Price Calculator visit dairynz.co.nz/tactics.
Source: Stuff
