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05 October 2017

Dairy Summer Tour – producing milk on leased land

Posted By: AIB Business
george-rams-245

This year’s Irish Grasslands Dairy Summer Tour, sponsored by AIB Bank focused on milk production on leased land visiting grass based dairy farms in Skeaghvasteen, Co. Kilkenny and Tullow, Co. Carlow on Tuesday July 25th. George Ramsbottom, Teagasc and IGA shares some of the key lessons to emerge.

With stocking rate increasing by approximately 10% since quota removal and one third of dairy farmers renting an estimated 30% of the land they farm, leasing land to increase milk production was the focus of this year’s event.  The topic attracted a record audience - over 600 dairy farmers from around the country attended the event.

Common themes

Common features of the host farms were the following:

  • The relationship that both hosts have with the owners of the land that they lease – both mentioned openness, communication and respect when asked about how they work with the owners of the leased land;
  • Their focus on improving soil and breeding the right cow – both farmers place huge emphasis on regular soil testing and planned fertiliser applications and believe in breeding highly fertile, high EBI cows to maximise the yield of grass utilised on their farms;
  • Their emphasis on financial budgeting and monitoring – both carefully plan cash flow on a monthly and multi-annual basis. 

The Moran Farm

Cathal and Grainne Moran farm at Curraghlane, Skeaghvasteen, Co. Kilkenny.  Cathal started farming in 1997 with 16 cows when the farm also had beef, sheep and tillage enterprises.  Today he farms a total of 144 ha where just over half of the 120 ha milking platform is leased.  This year’s overall stocking rate of 2.5 LU/ha includes 259 cows and replacement heifers.  In 2016, the herd produced 450 kg milk solids per cow (4.30% fat; 3.67% protein).  Cathal plans to increase this to 360 cows within 2 years with replacement heifers contract reared off the farm. 

The Kealy Farm

Jamie and Lorraine Kealy are first generation farmers.  Coming from a non-farming background, they purchased 12 ha of land while Jamie worked as a building contractor.  He commenced milk production on a 26 ha fertile leased farm at Slaneyquarter, Grange, Tullow, Co. Carlow calving 60 heifers in the spring of 2014.  The lease also included cubicle accommodation and a milking parlour.  The following year, Jamie leased another 10 ha across the road from a second lessor and he currently milks 94 cows stocked at 2.6 cows/ha on the milking platform.  His herd produced 530 kg milk solids per cow (4.47% fat; 3.70% protein) on 780 kg meal last year.  He plans to increase the size of the herd to around 120 cows over the next couple of years.

Developing a relationship

Both hosts alluded to developing a relationship with the land owners, talking about the importance of trust which comes from being open and transparent in their dealings with them from the start.  Jamie for example talked of informing the land owner about what his plans are before making changes, ‘You’ve got to remember it’s their land you’re dealing with’.  Minding leased land as if it was their own has helped both hosts to strengthen the relationship that they have developed with the owners of the land that they lease. 

Investment costs

Both Jamie and Cathal detailed the investments they made to develop their farms.  The costs involved for both are summarised in Table 1.

Table 1.  Investment costs (€/cow) for the Kealy (well developed leased former dairy farm) and Moran (conversion to a specialist dairy farm) farms.

 

Kealy

Moran[1]

No of cows costs are based on

100

360

Cow opportunity cost

€1,200

€1,200

Accommodation & milking facilities

€550

€2,500

Land development/improvement

€250

€500

Milk quota

-

€800

Total invested per cow

€2,000

€5,000

 

For the Kealys, leasing a fertile, former dairy farm the investment costs were lower than for the Morans. Most of the infrastructural work was already done on the farm that they leased.  Total investment still totalled €2,000 per cow because paddocks needed to be adjusted, roadways extended and water system upgraded.

On the Moran farm all the facilities have been constructed on effectively a green field site to include a 30 unit milking parlour, 350 topless cubicles and two lined slurry lagoons.  Converting drystock and tillage land to dairy use involved constructing new roadways, reseeding most of the milking platform, soil fertility improvement and developing a paddock system.  The investment on the Moran farm has taken place over the past 20 years with approximately 60% of the costs incurred since 2014.  

Lease length determines true cost of the investment

Speaking at the event, Laurence Shalloo, Teagasc Moorepark highlighted the impact of the lease length on total annual costs.  Assuming an investment cost of €2,500 per cow (€7,500/ha) with half of the investment borrowed, and a stocking rate of 3 cows per hectare the funding and depreciation costs were €825/ha, €596/ha and €481/ha for leases lasting for 10, 15 and 20 years respectively.  Thus the greater the length of the lease, the lower the annual cost of investments made by the lessor on the land. 

Generating a return

Of interest to the audience on the day was the capacity of both farms to generate a return on fully or partly leased farms.  The financial performance of the two host farms in 2016 is presented in Table 2. 

Table 2.  Financial performance of the host farms dairy enterprise in 2016 (€/ha).

 

Kealy

Moran

Gross output

4,157

5,252

Variable costs

1,344

2,246

Fixed costs

1,305

1,779

Net margin

1,508

1,227

Own labour cost

775

370

Margin after own labour

733

857

 

Both farms were operating to a high level of technical efficiency in 2016.  The Moran farm was more highly stocked than the Kealy farm in 2016 (2.8 vs. 2.4 LU / ha) in anticipation of extra land coming on stream in 2017.  Own labour costs totalling €30,000 were included per farm leaving a margin per hectare of €733 and €857 to cover principle repayments and taxation on the Kealy and Moran farms respectively. 

In conclusion, the visits to the two farms showed that when farmed efficiently, leasing land for dairying can be a profitable option.  According to Cathal, ‘There is no point in farming your own land badly and thinking that leasing more is going to make you more money’. 

George Ramsbottom,

Teagasc Dairy Specialist & Chairman of the IGA Dairy Summer Tour organising committee

 

Planning Farm Investment?

If you need advice or want to see how much you could borrow right now, visit our dedicated Agri Business page.

 

[1] Based on 360 cows milked which is planned for 2019.

 

 

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