Promar Standard Feb AW:Layout 1 - Milkminder Feb 2009.pdf · and move to a tight autumn calving herd. “We needed to get a grip on calving interval and also wanted to start to increase

promarstandardFebruary2009

What does the credit crunch

mean to UK farming?

Focus on fertiliser

Accurate data will helpplot family farm’s future

Promar Cost Tracker for Tesco explained

Radical shake-up on target to

deliver results

the

A Company

A long-established Shropshirefarming family has taken along hard look at theirbusiness and with the help ofPromar Dairy ExcellenceConsultant Chris Foster, is wellon track to implementing amajor programme of changesto the system.Tim Towers’s family has farmed at theLighteach Farms, Prees since early lastcentury. They have always been adairy farm and have seen considerablechange in that time.

Until early last year, Tim had beenrunning a system based on an all yearround calving flying herd of 220 cowson 330 acres. The majority of the farmis down to grass, with maize and asmall acreage of barley.

Performance had been slippingrecently with a lengthening calvinginterval and a decline in total milk soldand milk yield from forage, so Timand his Promar Finance ConsultantGraham Wilson, arranged abrainstorming session with RegionalConsultant David Burns.

Increasing efficiencyThe outcome of the discussions wasthat the system needed to besimplified and focussed to improveoverall efficiency to generate thefunds required to allow thereinvestment needed for better cowaccommodation and compliance withthe NVZ regulations. Dairy ExcellenceConsultant Chris Foster then becameinvolved and now visits the farm on afortnightly basis.

Chris helped formulate the technicalplan and Graham Wilson has translatedthis into the farm financial budget.

The biggest decision has been toreduce cow numbers from 190 to 165and move to a tight autumn calvingherd. “We needed to get a grip oncalving interval and also wanted to startto increase yield from forage,” Chrisexplains. “The high cow numbers wereplacing undue pressure on the buildingsso cows that fell outside the targetcalving winter have been sold and otherspurchased that fit the new calvingperiod. Ideally the farm can cope with180 cows in milk”

In early December 48 spring andsummer calvers were sold along with12 barreners and replacements arenow being added to the herd.

Sexed semenTo help ensure the new calvingwindow is met Tim has joined theGenus RMS scheme and has movedaway from DIY AI. In addition he hasstarted rearing replacements again andthe aim is to have around 50 heiferscalving every year at the start of thecalving window. In future Tim willprobably use sexed semen on heifers tohelp maintain a tight calving pattern.Achieving the calving block will be thecatalyst to other changes. “Tighteningthe calving pattern and interval will helpincrease milk sales and yield fromforage,” Chris continues. “The milkingherd is run as one group and wastraditionally fed for M+20 litres outsidethe parlour on a diet based on grass andmaize silage and a blend, topped up to

yield in the parlour. With a tightercalving group we can increase this to adiet designed to give M+25 litres. The all year round calving pattern alsomeant that cows were buffer fed whileat grass. The tighter pattern will meanthat all cows will be PD+ when they areturned out and we can stop bufferfeeding, saving on feed and power andmachinery costs.”

Grazing changesTo help improve yield from grazedgrass, Tim is setting up a paddockgrazing system to replace the currentset stocking arrangement and isinvesting in the grazing infrastructurewith tracks, fencing and extra watertroughs. The target is to achieve a 21day rotation with the cows gettingfresh grass at least once a day.

Tim is also looking to improve the qualityof his grazing and will be looking tooverseed some paddocks and increasethe proportion of clover in the leys.

The aim is to increase annual milkyields back to 7,200 litres as soon aspossible, with a target of 8,000 litreswith yield from forage rising from1,770 to 3,000 litres per cow.“The targets are challenging,” admitsTim Towers, “but we are confidentChris’s regular visits and attention todetail in all areas of cow managementwill help us achieve them. I think DairyExcellence has been the catalyst forchange and now we must focus onmaking it work.”

Radical shake-upon target to deliver results

Published by: Promar, Rookery Farm Lane, Tilstone Fearnall, Tarporley, Cheshire CW6 9HY Tel: 01829-731731 • Fax: 01829-730900 • www.promar-international.com

Chris Foster and Tim Towers

2

“Change will not come if we wait for some other person or

some other time”.This quote, from US President Barack Obama, is particularly timelyfor UK dairy farming.In the next few months it is perhaps inevitable that milk prices will fall,driven by the effect of global recession on markets and customers. In theshort term we have been protected by currency movements but this won’tlast forever. There is nothing anyone can do about this, so it is important tofocus on what you can influence and this means looking within the farmgate for areas you can change.

Take silage for example. You can’t change the silage currently in the clampbut how can you change forage management and silage making to make abetter feed for next year? A good starting point is this year’s silage analysis- what does it tell you about where you could improve?

What about fertiliser use? With prices considerably higher than last year itwill pay to look for where savings can be made. In this issue of the Standardwe look at how some possibly large savings can be made relatively easily.

Change requires a foundation in good information and we talk to a farmerwho is finding the data produced by Farm Business Accounts invaluable inassessing his business. We also visit another customer who is makingsignificant changes to his system.

It is often said that the only thing that is certain is change itself. In the nextfew years it will be those who embrace change that will develop the moresustainable businesses.

Promar Principal ConsultantJohn Warrington considershow the global financialdownturn will impact on theUK dairy farming industry.Record losses, manufacturing closures,widespread redundancies, Governmentintervention and refinancingcommitments. These are the eventsthat have dominated the headlinesover the last few months and are likelyto do so for months to come. But whatdoes it mean for UK dairy farming?

As yet there appears to have beenlimited direct impact and this is perhapsdue to the nature of the industry.While Honda, Jaguar or Toyota canclose a plant for a few weeks tosave costs and stop production of aproduct that isn’t selling, you can’tdo the same with cows!

Currency fluctuationsAt the same time, althoughconsumers are economising and candecide not to replace their cars, theystill need to eat so demand for food is reasonably healthy. But they willchange what they eat and spend. In fact farmers are being urged tomeet the ever-increasing globaldemand from food for a continuallyexpanding population.

Nevertheless the global creditsituation is having an impact onfarming in this country. The first andmost visible effect has been as a resultof the currency markets.

VIE

WP

OIN

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the credit crunchTime for a change

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3

In a financial crisis the money marketsfavour stronger economies and theimmediate upshot was a rise in thevalue of the dollar against sterling. In a matter of a few weeks the poundwent from being worth $2 to just $1.50.

The dollar position affects the cost ofall farm commodities that are tradedin dollars, including feed, oil, energyand fertiliser, keeping prices higher insterling. For example the price of soyarecently fell by 40% in dollar terms,but only by 20% in £ sterling.

Strong EuroHowever the currency markets havealso worked in farmers’ favour as thestrong Euro has helped insulatefarmers from the full extent of the fallon the dairy product commoditymarkets. As the £ sterling strengthensagainst the Euro, this is starting toincrease downward pressure onfarmgate prices.

As the flow of credit has tightened, sothe banks are under pressure toreduce their own risks. There aremany comments about the banksreducing their lending and increasingtheir charges which is leading tocashflow problems for businesses.

Generally agriculture is still seen as areasonable lending proposition butbanks are unlikely to look twice atanything other than a cast ironproposition. Anyone looking toborrow money will need to make sure they have got their facts absolutelywatertight.

Banks will also want to improve theirmargins and there are clear signs thatthey will do so by increasing thelending rate and charging a higherpercentage above base rate for loans.This will make new borrowings moreexpensive and will increase the cost ofsome existing borrowing if terms haveto be renegotiated. It will pay toreduce borrowings if possible andlook at ways to consolidate funding toachieve the most favourable rates.

Cash is kingThe clear message at the moment isthat cash is king and this will certainlybe the mantra of the supply tradewho will be squeezed from both sidesas their suppliers chase for paymentwhile customers try to extend creditterms. Agricultural merchants areunlikely to look favourably on farmerswho see them as a source of cheapcredit. More probably we will seepreferential terms made available tofarmers who pay promptly while latepayers will be penalised more heavily.

What is not known at present is howthe financial turmoil will affect farmer asset values, primarily land.Land prices are historically high andalthough they have fallen in the lastfew months are still 50% higher thanthey were three years ago.

Low interest ratesInterest rate cuts could encourageinvestors to stay in the market andtake advantage of the lowest cost ofborrowing for 300 years, especially asthe returns on residential andcommercial property have nosedived.If nothing else, land is in finite supplyand as more food is needed land willbe seen as an attractive asset.

Overall, the credit crunch will affectfarms, but not to the extent that itwill affect other industries. Times willbe difficult rather than calamitous,and those farmers who are running

efficient businesses whereinvestment is funded from theirown generated cash the impact

should be manageable. As ever thosebusinesses who need to borrow moremoney to fund a less profitablebusiness, let alone reinvestment, willfind things more difficult.

What does

mean for UK farming?

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It’s all a case ofsupply anddemand... ...and speculationAs with other globalcommodities, the main driverfor fertiliser prices is supply anddemand. If demand rises, priceswill follow unless supply alsorises. This has always been thecase but this year has been farmore turbulent than manyothers.

Globally demand is rising, notably asland comes out of set aside and asthe global cereal acreage grows.Supply is also close to demand.Global N supply is just 2.2% morethan demand suggesting than supplycan not be switched on to meet thedemand leading to the price risesand there is no huge stock held inreserve.

Over the last year the price of ureahas more than doubled, primarily asthis mirrors the prices for oil and gasfrom which urea is made. The pricesfor phosphate and potash have morethan trebled and this is not oilrelated and is solely down to supplyand demand.

But how has this resulted in the hugeswings in prices we have seen thisyear? The main reason is the role ofspeculators. Many were speculatingon the fertiliser market and whenavailable credit was withdrawn theywere forced to sell resulting in muchlower prices.

Some manufacturers have nowclosed down plants as they are nowloss making. That will reduce supplyleading to a rise in prices.

The increase volatility in prices makesbuying fertiliser a more difficultdecision and means watching themarket very carefully. The downwardtrend in prices seen since Augustmeans that very many farmers haveheld off buying ahead, but decisionswill need to be made soon if fertiliseris going to be on farm ready for earlytop dressings.

Cut costs by onlybuying what youreally needSubstantial savings in fertiliserbills can be made if the time istaken to plan usage carefullyand, in particular by taking fullaccount of the soil reserves andthe nutrient value of slurriesand manure.Many dairy farms have followed arelatively standard plan whenapplying fertiliser and theconsequence has been a gradualbuild up in available soil reserves,especially on grazed fields wherecows are returning plant nutrientsevery day. Stop putting onadditional phosphorus where soilreserves are already high. Manyfarms have good fertile soils so nowis the time to cash in on them.

4 5

FOCUS ON FERTILISERFertiliser prices have been very volatile over the last year but generally prices are nowconsiderably higher than 12 months ago. Promar Regional Consultant David Burnstakes a look at what is driving prices and considers ways to reduce the fertiliser bill.

Time to calibrate your fertiliser spreaderEnsuring your fertiliser spreader is operating at maximum accuracybefore you start top dressing grazing and silage fields will meanthat you can save money and help preserve cross compliance andELS payments.It has always made sense to make sure fertiliser is applied accurately, yet aswith all machinery, it is possible for fertiliser spreaders to become inaccuratewith use.

Inaccurate application leads to reduced grass yields and can result in wasteas fertiliser is unknowingly spread into hedges and field margins. To this loss,we can now add the risk of losing ELS and SPS payments if field margins,hedges and watercourses are compromised.

Fertiliser spreaders should ideally be calibrated annually using a series of trayslaid out across a smooth surface over the anticipated spreading width. A knownamount of fertiliser is spread and the proportion landing in each tray is thencalculated. Any over or under spreading can then be corrected. There arealso a number of organisations which provide calibration services to farmers.

For an average dairy farmer using just 250kgN/ha on 70ha of grassland, a 10%wastage rate would mean that £1,750 of fertiliser is being wasted each yearat today’s prices.

If this fertiliser ends up, say, on the buffer strip land included within an ELSplan, you also stand to lose those buffer strip points from the ELS total. If that dropped you 20% away from the whole farms ELS target, then youwill lose the whole of the ELS payment - £2,100 per year in the case of our70ha all grass farm and be banned from re-entering any other environmentalscheme for 2 years.

The starting point is to get the soilanalysed so you know exactly whatnutrient value is there and so howmuch extra you need to add. Thetime spent taking soil samples willbe time well spent. When was thelast time you carried out any soilanalysis?

A recent survey showed the averageP index on UK farms was 2.8 with80% of fields having an index ofabove 2, indicating considerablescope to cut back on fertiliserphosphate use. Regular soil analysiswill allow many farmers to stopbuying expensive compounds. On agrazing field with a P index of 3 andabove, using 34.5% nitrogen insteadof 25:5:5 would give a saving of£25/ha every year.

The next step should be to make full use of slurry and manures.Assess the quantities available andthen account for it in the fertiliserplan. A 150 cow dairy herd willproduce approximately 8,250kg ofnitrogen in slurry and manure everyyear, allowing a huge saving oftonnes of bagged nitrogen if usedeffectively. Not to mention the3,300kg of phosphate and the8,250kg of potash as well!

Apply it in the spring to maximiseuptake by the plant. Considerbagged N as a top up for organicnitrogen and not as a substitute forwhat is already freely available.

Soil sampling packs are available

by calling 01829-731731.

A five field pack costs £50.

Accurate data will help plotfamily farm’s futureClive Prichard is eagerlyawaiting the arrival of his firstPromar Farm Business Accounts(FBA) Annual Report providedunder the Tesco arrangement ashe is confident the informationwill help in planning thedirection for the business.Clive, his wife Melanie and sonRobert, 20, farm nearly 700 acres atLlanishan, between Monmouth andChepstow, of which 270 acres areowned and the rest rented.

The farm carries a herd of 180 dairycows which calve all year round.The herd is cubicle housed as onegroup and fed a TMR in the winterbased on grass and maize silage,crimped home grown wheat and aprotein balancer. In the summer theherd is paddock grazed.

All calves are kept and reared.Heifers calve at 24-26 months whilebeef calves are fattened to sell at27-30 months. In total the farmcarries approximately 320 head ofreplacements and beef cattle.

The farm is primarily down to grassbut around 100 acres of maize forsilage and 100 acres of cereals aregrown every year, along with 15acres of potatoes.

Paperwork not a high priorityThe farm employs two members ofstaff and the only work contractedout is cereal drilling and combining.The Prichards also carry out silagemaking on contract for neighbours.

In addition to the farm, Clive runs apopular clay pigeon shoot. Around60 shooters attend the shoot everyother Sunday. The shoot is runthrough the farm books.

Clive is the first to admit that withall the enterprises on the farm thepaperwork and books weren’talways a high priority. “We kept ontop of the paperwork but I can’t say itis something we enjoyed. Melanie didthe monthly VAT and the movementbooks and passports while I looked

after the invoices and receipts.

“The problem we faced is that wedidn’t really know how the enterpriseswere performing. With Robert nowback in the business we need to knowwe are heading in the right directionfor the future and the accountsproduced by the accountant did nothelp at all.

“So when we were approached aboutusing Promar FBA as part of the TescoTracker programme it seemed to makereally good sense. We could getprofessional help to keep the books upto date, would get some really in depthanalysis of the business and contributeto a scheme which had the potentialto deliver a meaningful milk price.”

Monthly visitsFarm Business Secretary NicholaCook now visits the farm everymonth. She collects details of allphysical and financial transactionssince the last visit and produces theVAT return. The data is also used toprovide enterprise costings. At theyear end the data is used to producea fully reconciled set of farmmanagement accounts.

“We are already seeing the benefits ofFBA,” Clive continues. “The enterprisereports that Nichola produces allow usto really understand the costs andreturns from the different enterprises.We knew the cereal production costsimmediately after harvest and this ishelping give us a real focus andRobert is developing a real feel forhow the farm is performing.

“Melanie is also pleased as she nolonger has to worry about getting theVAT done. We are still doing thepassports ourselves but this is somethingelse we could ask Nichola to do.”

Looking forward, Clive is hopefulthat the Annual Report produced atthe year end will provide the basis forsome serious planning discussions.“We need to plot a course for thefuture and decide on how and whento reinvest and we need a soundfoundation for these decisions and Iam sure FBA will provide this.”

TescoClive is a firm supporter of the TescoTracker approach. Being the First Milkrepresentative in Monmouthshireand Glamorgan, he represents theTesco suppliers in that area whoprovide Tesco with their Welsh milk.He is surprised how many farmershave been sceptical of the initiative.

“I’ll be honest that I only joined FBAbecause Tesco were prepared to coverthe cost of my providing the data.That said, I am getting first classinformation about my business whileTesco are developing a realunderstanding of average dairy farmercosts through the collection ofaggregate data from a range of farms.

“The principle of milk pricing whichreflects the true costs of productionincluding the need for reinvestmentand a fair return for the farming familyhas to be a step in the right direction.I have tried to encourage farmers tojoin the scheme as the more farmsthat contribute to the cost survey, the better the data will be.

“Having attended the meeting withTesco it is clear they are getting a betterunderstanding of the issues facingfarmers such as the calf export banand NVZs and I think the Tracker candevelop into a real win:win situation.”

In the meantime Clive will focus onhis business and is looking forwardto receiving the annual report. “I think the report will be a real eyeopener and I also hope that allNichola’s work will allow myaccountant to reduce his fees as well,”Clive concludes.

6 7

The Promar CostTracker for TescoexplainedPromar National Dairy ConsultantDerek Gardner explains the detailof the Cost Tracker.Q:What is the Cost Tracker that

you do for Tesco?A: It is a mechanism by which Tesco

collects data on the cost of milkproduction. Tesco have publiclystated that the aggregate cost ofmilk production will be theminimum price that they will payfor milk. In so doing they areacknowledging that farmers shouldnot be paid below their cost ofproduction, including a realisticcost placed on the value of unpaidfamily labour.

Q:What is Promar’s involvementin the Tracker?

A: Through the Promar Farm BusinessAccounts (FBA) system Promarcollects individual farm data oncosts. All costs are fully reconciledand used to produce detailed farmmanagement accounts for thefarmer. This individual data is thenaggregated to give average cost ofmilk production information, whichis supplied to Tesco and the farmermembers of the Tesco SustainableDairy Group (TSDG) committee.

Q:Does anyone else see theindividual farm data?

A: No. We never divulge details ofindividual farm data to any thirdparty, just aggregate results. To doso would be illegal and a breach ofthe Data Protection Act.

Q: Is the Tracker the only elementused in determining Tesco’s milkprice and do Promar thereforeeffectively set the Tesco price?

A: No. The Tesco milk price isinfluenced by the cost ofproduction data. There is also amarket adjustment value overwhich Promar has no influence.Other than providing aggregatecost data, Promar plays no part inTesco’s milk pricing deliberationswith its various suppliers.

Q:What costs are included in theTracker?

A: The tracker is designed to give thetrue cost of milk production. It includes all of the cows’ variablecosts, all of the heifer rearing costs,and the cows’ share of all of theoverhead costs. The inclusion ofunpaid family labour recognises theinput of the farming family andshows the full depth of all the costs considered.

Clive and Robert Prichard