Markets

Profits drop on Queensland farms

By Dairy News

THE PROFITABILITY of Queensland dairy farms continues to decline due to climatic conditions and high purchased feed costs, according to the latest Queensland Dairy Accounting Scheme report from the Department of Agriculture and Fisheries.

Profitability

The dramatic decline in the profitability of Queensland dairy farms in 2017–18 has been exacerbated in 2018–19.

Earnings before interest and tax (EBIT) per cow has declined from $400 in 2017–18 to now be $113 in 2018–19. Return on assets managed has also decreased from 2.3 per cent to 0.6 per cent.

The most significant influence on this decline in profit is the drought in eastern Australia which has increased the price of purchased feed and also increased the amount of feed being purchased by Queensland dairy farmers. The result has been a 5.6¢/litre increase in feed related costs between 2017–18 and 2018–19. Even more significant is the 8.7¢/litre increase in feed related costs over two years, between 2016–17 and 2018–19.

Total cash overhead costs increased by 1.2¢/litre. The increase in feed and overhead costs resulted in total farm working expenses increasing by 7.2¢/litre.

Production

While Queensland’s milk production decreased by 10 per cent in 2018–19, the average milk production of farms in the QDAS sample only decreased by 5492 litres or less than one per cent. This static average result hides the variation across the state.

Extreme climatic conditions in north Queensland, where four months of drought was followed by eight months of extreme rainfall with some farms receiving three metres of rain in that time, resulted in all QDAS farms in that region having reduced milk production, with one farm decreasing production by 460 000 litres.

In the south of the state dry conditions resulted in low instances of mastitis in QDAS farms with intensive feeding systems. As a result, many of these farms increased their milk production, albeit with high feed-related costs.

Production costs

Feed related costs increased by 5.6¢/litre, from 30.2 ¢/litre in 2017–18 to be 35.8¢/litre in 2018–19. Purchased feed contributed the majority of this increase with purchased grain and concentrates increasing by 3¢/litre. Purchased hay and silage increased by 1.7¢/litre to be 4.0¢/litre.

This is over twice the expenditure on purchased hay and silage recorded in 2016–17. The demand for and expenditure on purchased feed is exacerbated by the lack of pasture available for young stock which have been fed on rations usually reserved for productive milking cows.

The top 25 per cent group (sorted by EBIT per cow) achieved feed-related costs of 36.4¢/litre. This is 0.6¢/litre higher than the average of all farms. In 2018–19 feed costs consume 58 per cent of milk income, up from 51 per cent in 2017–18 and 46 per cent in 2016–17.

The margin over feed-related costs decreased by 2.6¢/litre, from 28.4¢/litre to 25.8¢/litre.

The farm operating cash surplus for the top 25 per cent group is 18.2¢/litre, which is 4.8¢/litre higher than the average of all farms. This difference is combination of higher milk income (0.9¢/litre), higher cattle sales (1¢/litre), higher feed related costs (0.6¢/litre) and lower overheads (2.5¢/litre).

Factors affecting profitability

To investigate the factors affecting profitability, the QDAS results of the top 25 per cent group (sorted by EBIT per cow) are compared with the results of the remaining 75 per cent of farms.

The higher EBIT per cow achieved by the top 25 per cent group is directly linked to the following profit drivers:

Higher production per cow. The top 25 per cent group produced 1523 litres per cow more than the remaining 75 per cent group.

Selling more litres of milk.

The top 25 per cent group sold 808 782 more litres of milk than the remaining 75 per cent group. This is driven by production per cow and by having 61 more cows (milkers and dry).

Higher milk income

The top 25 per cent group had milk income 1.2¢/litre higher than the other group.

Lower farm working expenses

The top 25 per cent group had farm working expenses 4.5¢/litre lower than the other group. Interestingly the top 25 per cent group actually had higher feed related costs than the other group.

Better labour efficiency

The top 25 per cent group achieved 90 915 more litres per labour unit.

QDAS reports have always shown that farms with higher production per cow have higher profitability.

This year 60 farms across Queensland were surveyed and the report can be found at
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