Grow your bottom line with new pasture

Grow your bottom line with new pasture

March 2: Cost-conscious dairy farmers take heart – even with the lower payout, investing in new pasture remains highly profitable this autumn.

Financial analysis shows spending $1000 on autumn pasture renewal can lead to a gross return of more than $4000 over the next five years, while spending $1000 on palm kernel actually leads to a small loss this season in terms of milksolids.

“Pasture remains the corner stone of feeding cows in the New Zealand dairy industry, and the amount of pasture eaten per ha is widely acknowledged as a key profit indicator,” explains Graham Kerr, pasture systems manager for Agriseeds.

“We know farmers are looking for ways to maintain profitability at the current payout, so we compared three different scenarios using an investment figure of $1000 to get them thinking about what gives them the best bang for their buck this autumn.”

The three options were: do nothing and save the $1000; spend $1000 on 1 ha of new perennial pasture, or use the $1000 to buy 3.5 tonnes of palm kernel supplement.

Doing nothing led to no extra feed being produced and thus no extra milk in the vat and nil gross return.

By contrast, renewing 1 ha of pasture could provide 20 tonnes/ha of extra feed, assuming it increased existing DM growth by 4 t/ha every year for five years. This in turn equated to extra milk (1067 kg MS) and extra income ($5015).

Even after subtracting the $1000 cost of pasture renewal, farmers were left with a gross return of $4015, Graham says.

"Take off the variable costs of milk production, say 20% of gross income or $1000, and you’re left with about $3000, or a 300% return on the initial $1000 invested."

Spending $1000 on palm kernel added a net 2.8 t DM eaten, and this translated to extra production of 190 kg MS, worth $888. Once the cost of the supplement was subtracted, however, farmers were left with a negative gross return of $112.

Graham says the take home messages are clear.

“Good cost control is very important, but doing nothing is not the best option in terms of generatingincreased profit over the next few years.

“At the current MS price, feeding supplements simply to increase milk production is difficult to justify economically. But supplements still play an important short-term role in compensating for pasture deficits, and PKE can have a good role in autumn increasing cow BCS.”

“Pasture renewal at the current payout can be highly profitable. There are some critical provisos here – it must be done properly, with no corner cutting.”

To succeed, farmers need to identify their poor producing paddocks; fix the underlying reasons that caused poor performance in the first place and follow up with a well planned renewal programme to capture all the potential benefits of their investment, he says.

"Given this it remains a great investment option."

Example: 3 things you could do with $1000

1. Do nothing; save the $1000.

2. Spend $1000 on sowing 1 ha of new perennial pasture.

3. Spend $1000 on 3.5 t of PKE.

Do nothing Sow 1 ha new pasture Buy 3.5 t PKE

Extra feed 0 20 t DM/ha

(grow at extra 4 t

DM/ha for 5 years)

Utilisation - 80% 90%

Extra DM eaten 16 t 2.8 t

Conversion to MS - 15 kg DM/kg MS 15 kg DM/kg MS

Milk produced - 1067 kg MS 190 kg MS

Income @ $4.70/kgMS $5015 $888

Less $ spent $0 -$1000 -$1000

Gross return* $0 +$4015 -$112

Note: This is a high level example and figures will vary between situations. *Gross return does not include any variable costs associated with extra milk production, which could possibly be 10-30% of income.

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