Keeping costs down in 2025 is going to be the vital tool in improving farm profitability for the year, and won’t be an easy task considering the significant increase in the cost of production on Irish dairy farms in recent years.
Despite the massive variability in milk price in the past four years, costs have remained high, which emphasises the importance of refocusing our cost control on farms.
The average cost of production in 2023 was 37c/L and it remained at a similar level in 2024, which means farmers have to simplify their systems to keep down this cost in order to achieve a good margin in milk price.
The rate of spending for feed has increased significantly in recent years, while pasture utilisation has declined – a trend that needs to be reversed in order to achieve maximised farm profitability.
Costs
At the Teagasc National Dairy Conference in November, Teagasc dairy specialist, Patrick Gowing talked about the cost analyses they carried out with 700 farms.
The analysis found that there was a huge range in farm profit, with the top 10% being €500/cow ahead of the average and the bottom 10% being €500/cow below the average in 2023.
It is important to be able to understand what the higher margin farms were doing in order to sustain a higher margin, particularly with a year like 2024, where margins were tight.
Higher margin farms had the following:
- €250/cow lower variable costs;
- €300/cow lower fixed costs;
- Had tighter cost control across nearly all categories;
- Produced 70kg/milk solids/cow more for less purchased feed input;
- Utilised more pasture/ha and achieved higher grass intake per cow.
The variability in costs was evident, with overall farm performance having a serious impact on profits from the farms.
The difference in net margins and profits was down to various decisions being made on farms, and was not down to the location or the soil type.
Minimising spending
A dairy farm needs to aim to be sustainable in surviving milk price drops, while being profitable when milk price is high, while being sustainable across all the key performance indicators (KPIs).
There is significant potential to increase your productivity and efficiency at farm level when compared with the average farm across the country.
The focus at farm level must be about increasing grass growth and utilisation, while converting that feed to milk solids sales in as low a cost as possible.
Grass is the cheapest feed available, so utilising it is as much possible has a huge impact on profits and costs.
Converting to a more simplified system by increasing your labour efficiency by using more streamlined work practices, using contractors, contract rearing your heifers will all have a huge impact on labour costs.
Driving your profitability per hectare needs to be a farm focus, and that may require you to decrease your labour requirements, finding your optimal stocking rate and utilising as much grass as possible in your system.
Over €500/cow in additional profit was attributed for by cost control on the higher margin farms, and a saving of €100/cow in costs in 2023 would increase the profitability of average farmer by 16%.
This tells us that small changes can make the difference and farmers should analyse their costs from 2024 and see where they can improve in 2025, identifying areas of over spending.