Charles Holt (Lincoln)

It is crucial that you have a good handle on your production costs in these days of rampant cost inflation.  It is very easy to be carried away by the milk price increases, and to just assume that these will more than cover your cost increases.  They may do, but they may not.  So how do you assess the rises?

One way is to relate them to a cost per litre of milk you are producing.  This may make it easier to relate to milk price changes.  Here are some examples:

Fertiliser (Nitrogen): If your cost of 34.5% AN has risen since last year from £250 to £950/T, the cost per KG of N has risen from 72p/kg (25p divided by 34.5%) to 275p/kg.  At 240kg N/ha, this is an increase in cost from £174 to £661 per hectare.  That is a total of £487 per hectare, which at a stocking rate of 2.0 cows/ha is £243 per cow.  At 7200 litres per cow, this equates to an increased cost of 3.4ppl extra.

Feed (dairy concentrates): If you feed 2 T/cow, and the price has risen from £250 to £350/T, this will cost £200 extra pa, per cow.  Expressed over 7200 litres of milk, this is a cost increase of 2.8ppl.

Diesel (red): If your diesel price has risen by 40p/litre, from 70p to £1.10, and your fuel costs have therefore gone from £80/ha to £126/ha, at a stocking rate of 2 cows/ha, this is an extra cost of £23/cow.  At 7200 litres/cow, this is equivalent to an extra 0.3ppl.

Electricity: Say you were paying 12p per kWhr, and this has doubled to 24p per kWhr, and you use 500 kWhrs pa per cow.  Your costs have risen from £60 to £120 per cow pa.  At 7200 litres per cow, this is an increase of 0.8ppl.

TOTAL: Totalling these four cost rises gives a net cost increase of 7.3ppl of milk produced.  No wonder you need that milk price rise. Long may these milk price increases continue!

There are two further matters that must be borne in mind.  Firstly, the prices mentioned above are extremely volatile.  Dairy concentrate prices could be nearer to £400/T soon, and electricity prices at  30 to 35p per unit.  Along with other inflationary rises, the costs of production have probably risen by 10ppl for most producers over the last six months or so.

Secondly, milk price rises will not carry on for ever.   Milk buyers are not renowned for their generosity.    A peak will be reached somewhere, and it may be soon.  But do enjoy the increases while they keep on coming…….

Contact Charles at charlesholt@fcgagric.com  or your local FCG Office today, to help you get a handle on your costs of production and identify your strengths and weaknesses to help your business overcome the current Agflation.