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Managing Risk on an Expanding Farm

02 April 2013

Herds are expanding and have been for decades. John O'Sullivan's farm in Co. Kerry is no exception and he offers advice on how to grow your business safely through methods like; properly assessing the quality of leased land, grass budgeting and using a cost planner.

Introduction

I, together with my wife Marian and three children, farm a 25 ha owned dairy milking block on the outskirts of Castleisland Co. Kerry. The farm was purchased by my late father Christy in the late 1960s and has continually evolved with further expansion in mind. A pedigree herd of Holstein Friesian cows was started in the early 1970s giving the base for the herd that is milked today. The herd expanded in size over the years to 66 cows in 2008 and today the herd is at 93 cows producing over 500,000 litres. In 2009, 26 ha of adjoining land become available for a six year lease and presented an opportunity to significantly reduce my concentrate expenditure and expand my dairy herd. To date the herd has expanded by 30 per cent and feed bill has dropped by 50 per cent (excluding 2012). The leased land was in poor condition with little or no rye/grass, overgrown hedges and a poor road and water network. During 2009, 25 per cent was reseeded with a further 50 per cent in 2010.

Key Risks that I have Identified During my Farm Expansion

Return on Investment on Leased Land

One of my initial challenges was balancing the level of investment required to (a) upgrade the land and (b) expand the herd versus the potential return during the six year lease period.

Upgrading the Land

Since 2009, I have put in new roadways and cow paths, cleaned off ditches and drains around every field, reseeded 75 per cent of the leased block and increased soil fertility through the application of fertilisers and lime. I would put an estimated cost of €700/ha on what work has been done to date for reseeding, hedges, roads and water. With this level of cost, together with the grazing time lost during the reseeding period, the potential to yield a return during the six year lease is challenging.

I would recommend that a dairy farmer should clearly understand the type of ground on offer and the level of investment required to yield a return. This is critical if the soil fertility is poor and land is not well maintained. I soil tested the farm in 2010 and all of the leased ground was below index 3 for phosphorous indicating how poor it was and how costly it was going to be to increase it’s grass growing potential. I strongly believe that the higher the investment required, the longer the lease needs to be to allow the farmer to recover their investment and make a profit.

Expanding the Herd

When the leased land became available in 2009, I was fortunate to have a good infrastructure with sufficient housing and slurry storage available. While I had some replacements available, I had insufficient stock to fully benefit from the increased acreage immediately. There was a significant cost and time investment to bring these additional replacements to the milking herd and I had to balance this investment against the return I would achieve during the six year lease. My milking herd has now increased by 30 per cent and the stocking rate on the milking platform this year was 2.4cows/ha.

While these additional stocks are farm assets, they are linked to the leased land, and therefore there is a risk that these extra cattle would need to be sold if the lease was not renewed. Using the Teagasc figure of €1,553 to rear an in-calf heifer, it is critical that I recoup my costs with the six year lease term.

Cash Flow

For famers who are planning to expand into the future I think cash flow will be a huge stumbling block. Some elements to be considered include:

  • Upgrading the land – This is key if soil indices are low and land requires significant investment to bring it up to a reasonable standard.
  • Expanding the Herd – There is a considerable up-front investment to bring replacement stock through to the milking herd before they start to deliver a return.
  • Infrastructure – expanding the herd can require additional housing, slurry storage, roadways etc. which will require early investment without an immediate return.
  • Milk Price – Due to the risk of a fluctuation in milk price, cash availability during the expansion period can be a challenge.

What, if anything can be put in place to bridge these cash flow gaps?? Will the banks put facilities in place in the future for farmers like me who are expanding their farms?

Controlling Farm Costs

Farming on heavy soils means that my costs are higher due to extra feeding, extra ground maintenance, etc. Over recent years, costs have been put under further pressure with poor weather, increasing input prices and poor milk price. The squeeze that is being put on my net margin is a risk to my business and is a major influencing factor on my expansion plans. I believe that if I did not regularly assess my costs this year by completing the Cost Control Planner weekly, the cost to produce a litre of milk could have spiralled up towards 30c/litre. My projected total costs for this year are 25.4/litre which excludes my own labour. This compares to an average of 20.1c/litre over the previous four years. This year’s level of cost is unsustainable into the future.

Grow and Utilise more Grass

One strategy to reduce risk on the farm is to reduce meal feeding and to grow and utilize more grass. With the exception of 2012, there has been a decreasing trend in total costs, specifically feed costs, while stocking rate has increased. Through improving soil fertility, reseeding, drainage and grass budgeting the farm is growing more grass. Using methods such as on/off grazing improved infrastructure and grass budgeting, I am aiming to utilise more grass. However, this has been a challenge in recent years with high rainfall throughout the year. Table 2 shows the level of grass grown and utilised on the dairy milking block. I estimate grass grown to be 2.6 tonnes DM/ha lower in 2012 than in 2011. Overall utilisation fell from 75 per cent to 56 per cent this year. While the farm has potential to grow a lot of grass on a good year, the high rainfall in each of the summer months greatly reduced my ability to get use out of grass grown. In fact if I had not harvested baled silage from the milking block in early September my utilisation would have been considerably lower.

Grass Grown and Utilised and Meal fed, 2011 and 2012

* measured up to 30 October 2012

Weather – Who can Predict the Forecast?

While nobody can predict the weather it represents one of the most challenging factors for the Irish dairy farmer. This challenge is compounded by the heavy soils in Kerry and can result in huge financial pressure if it goes in the wrong direction. I have been unfortunate that the weather during 2009, 2011 and 2012 has not been ideal and has added pressure to generate a return on the leased land. However I still believe that farmers need to take the risk!!

To counteract these poor weather conditions, my strategy is to increase silage reserves in the future, by tightening up the stocking rate on the milking platform from April to June and take off more high quality first cut silage. With average rainfall of 1200mm and 30 per cent of this falling during May - August it can be difficult to plan ahead to build up silage reserves. With my heavy soils and wet summers I don’t think I can rely on taking enough surplus high quality paddocks out for round bale silage. I do grass budget weekly and I will take out surplus paddocks as high quality bales as they arise but this will be a bonus in my system – I will not rely on this fully. There is little opportunity to take off surplus bales in average to highly stocked farms on heavy soils.

Disease

With my plans of expansion, keeping a closed herd is important to me. I vaccinate for Salmonella and Leptospirosis and have been screening young replacements for BVD antibodies. While I am confident in my bio security and vaccination programme, the introduction of disease is always a real risk. For farmers who decide to expand through purchasing replacement stock, the risk of introducing disease is significant.

With my heavy soils liver fluke has been a major challenge for me especially in the last two years. With wetter summers and the restriction of many liver fluke dosing products, I have seen a huge increase in liver fluke infestation. I think that cows should be condition scored at dry off and reviewed again during the dry cow period. Cows calved down in poor body condition last spring and this didn’t help getting them back in calf. The empty rate this year was 17 per cent . On heavy farms, liver fluke is always an ongoing problem so using good fluke products and keeping a close eye on body condition is vital.

Strategies I have put in Place to Minimise Risk on my Farm

a) Soil sampling: This was the first step I took when taking on the leased land. This enabled me to draw up a nutrient plan for the farm and I could then plan ahead with what investment was required to increase soil fertility and to grow more grass.

b) Grass budgeting: I learned the skills of grass budgeting in 2009 and since 2010 I have been walking my farm up to 42 times a year, measuring and budgeting grass. As I mentioned, one of my goals in expansion was to reduce my concentrate expenditure which meant making more use of grass. By weekly grass measuring I know exactly how much grass is in each paddock and I can plan from there.

c) Cost Control Planner: I strongly believe in knowing what costs I have on the farm and I want to have control over them as much as I can. I have always kept a close eye on my costs by completing the Teagasc Profit Monitor but completing the Cost Control Planner weekly has given me even more control.

d) Housing cows during adverse weather: Rainfall this summer was 40 per cent above average for this region. As a result I had to house the cows 60 nights and 30 days fulltime during the 2012 grazing season. This is a strategy I took on so as to avoid poaching the ground. I did feed extra silage and up to 1.6 tonnes meal/ cow but milk production was on par with 2011 and I will have grass for next spring rather than damaged ground producing less grass.

e) I bought a cattle weighing scales with three other members of my local discussion group in 2009. I weigh the heifers regularly during the year. This enables me to have heifers at target weight for breeding and calving down. Weighing the young stock takes the guessing work out of breeding and feeding decisions. I am currently feeding the young weanlings 3kg concentrate, mainly to stretch silage stocks. Based on their current weights I am confident they will reach target weight of 330kg by 1 May for breeding next year.

Summary

Farming on heavy soils represents a challenge with many risks encountered along the way. How well I plan for those risks will determine how well the farm business can continue to deliver a reasonable standard of living for myself and my family. Thank you.

Further Reading

You can view the full report by clicking here.

April 2013

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