Dairies: Cost of Production More Important than Milk Prices

According to the DairyCo (UK) Milkbench+ report, the relationship between cost of production and profit is much stronger than many dairies realize. The report states that cost of production is the most significant factor in determining profit.

Milkbench+ analyst Karolina Klaskova says: “Through robust data and statistical analysis we see that the relationship between cost of production and margin is strong.” Ms Klaskova acknowledges that the findings are challenging. “The report raises many issues, including just how difficult it can be to make a profit from milk production,” she says.

This UK report suggests that dairy farmers can take steps toward managing production costs to significantly increase financial returns. The key findings:

• The key determinant of profit is total cost of production, not milk price.
• The right balance between input use and milk output (herd size and average yield) is essential. In particular the need for low yielding herds to maximize utilization of grass through a simple system and for small herds to contain fixed costs.
• Average yield per cow is not the main driver of profit. Higher yields are not the answer if they are produced at the expense of feed efficiency; every extra gallon needs to be profitable.

Conclusions:

• Milk can be produced efficiently from any of the major systems that are currently practiced in Britain. Moreover, efficient milk production is possible at almost any scale of production.
• Different factors drive profit for each system. The impact these factors have on returns varies considerably.
• The need to fit the system that you use to your own circumstances has never been more important.