HAVING a very good handle on homegrown feed costs will be the critical element for milk producers doing their sums on targeting the dairy beef market longer term. This was the advice from farm economics expert Jake Musson, who spoke about understanding the components of heifer rearing costs at a recent conference hosted by Dairy Australia called Growing Beef From Dairy. Supplying into the beef market right now was delivering solid margins for dairy farmers but there was a need to assess their sensitivity to shifts in commodity prices, he warned. Mr Musson, a farm manager at his family's Southwest Victorian dairy operation, spent time specialising in profitability and productivity research at Dairy Australia, followed by farm investment at Warakirri Asset Management. He said the cost of rearing heifers was poorly understood throughout the dairy industry, which was no surprise given the huge variation in feed costs between farms. The dilemma of what to do with excess calves - exports or dairy beef - was longstanding, but currently made even more complex by the element of high beef cattle prices. "Dairying is inherently risky and the last thing we want to do is increase the risk profile by rearing heifers longer than is needed," Mr Musson said. Dairy beef presents some very attractive business economic aspects outside the margin itself, such as scalability options, he said. "It allows businesses constrained by landlocking or dairy infrastructure to continue to grow," he said. "It's also significantly less labour-intensive than dairying, past the initial stages - a great advantage in the current tight labour market." The bottom line - dairy beef is one of the best diversification options open to milk producers. At the conference, hosted by Dairy Australia and held at Attwood in Victoria, Mr Musson showed a graph comparing the movement of the Eastern Young Cattle Indicator to southern state milk prices. Up until 2015-16, the EYCI was relatively stable, while milk prices were very volatile. Mr Musson said that demonstrates the strength of the option as a diversification. "Since then, of course, we've seen significant upward movement in both indicators and this has pushed many farmers into this market as they look to capitalise on high beef prices," he said. "The question is: when the EYCI falls off and the dairy-beef price corrects, will farmers still have a margin?" ALSO SEE: At the same time as the beef price has skyrocketed, inflationary pressures across all aspects of dairy costs of production have been heavy. If that is here to stay, which may be the case due to supply strains, then dairy farmers need to reassess their COPs and reset the base line, Mr Musson said. "We've seen exceptional movements in both price received and costs so it comes back to really understanding what it costs to rear a heifer," he said. Historical dairy industry data puts the figure in a very broad range, between $1300 and $2500. The most significant impacts were feed, at 56pc; health and breeding at 12pc and labour at 11pc, according to Dairy Australia research. There were big system variabilities in feed costs - a zero grazing (bought-in fodder) system led to a $1718 cost from birth to calving compared to a 75pc grazing system at $1190. "There is a real need to understand homegrown feed costs because there is a massive range of direct graze costs between farms - over $150/t dry matter in fact," Mr Musson said. Sensitivity analysis on the cost of grazed fodder showed there was over $100 difference in getting a calf to a 200kg point.
