This is a question we continually ask of ourselves. To help us identify the areas we should focus on we test the sensitivity of our economics to changes in a whole range of operating and economic assumptions.
Milk price - there is no surprise to learn that moving the milk price up or down has the greatest impact on farm economics. We, together with farmers generally, need to be more transparent and improve the education of the public and the consumer as well as the buyers of our milk as to the need to have a price that supports good, efficient operating practices and sustainability.
Cows in the herd - again, no real surprise here. This sensitivity confirms that the larger the herd is the greater the profitability provided. At Henden, when we look at our business and the estate in the round we know that our farm's optimum herd size is 260 to 275 with followers (heifers and calves) averaging close to 200. If we were to extend our barns still further this would require significant capital investment, which current milk prices do not justify. The increase in our infrastructure would also challenge our ground to supply the extra food required and to absorb the waste. In short, increasing the herd further is not really a viable option.
Yield per cow - this is the most important operational area for us to focus on. We had achieved success here milking our cows twice a day seeing our yield in 2011/12 averaging 29.0 litres of milk per day increasing to 33.5 litres per day in 2014/15. Sadly, in 2015/16 and 2016/17 we saw the yield drop to 31 litres. in 2017/18 we achieved just under 32 litres. To keep to this yield level we need to continue to work hard and intelligently and also, as ever, have some luck. One can simply increase yield by feeding cows more concentrates, but there are two potential problems. First, concentrates cost a lot of money and so one has to be sure that one is getting more money out of the increase in yield against the money being spent on the additional feed. Secondly, if cows are fed too much concentrates their digestive systems can be upset. This can lead to health issues and maybe a shorter life. So, production is not the driver here, long term health of the cow and profitability are.
All that said, this year we will be commencing to milk pur cows three times per day. This will start in May. We hope that this will increase our yield by some 15%, although it will take some six months to get to this level. This will increase sales, although at the same time we will incur more costs: an increase in labour costs most significantly; followed by increases in our utility and feed costs as well as some costs related to equipment usage. This 2018/19 year wil see some economic benefit from this change in strategy, but the main improvement should be seen in 2019/20.
Concentrates & Minerals - these are key foods for our cows. They are also very expensive. In 2018/19 we are budgeting to spend £321,000 to feed our various livestock groups. If we could find ways of reducing our costs by 5% we would improve our operating profit by nearly £16,000. Reducing wastage and getting the food mix right is vitally important.
Labour - there will be many who think Henden is overstaffed and will note that the total pay seems to be above the national average for farmers. We firmly believe that for the scale of our farm and to help have the teamwork and camaraderie that is required for efficiency and safety we cannot operate with fewer people. That said, we continually look to find ways of improving the team’s attention to detail. We have an established bonus scheme, which would give the staff a share of the operating cash flow should it reach a particular level. We also have a proper annual staff review so that each member knows what is expected of her or him and together we can help identify strengths and weaknesses.
The other elements are important, too, but not to the same extent as the ones outlined above.