Examine costs early to make better financial decisions

Patrick Gowing, Teagasc Dairy Specialist, points the way to the use of the Teagasc eProfit Monitor Forward Planner as a tool to make better financial decisions for the remainder of the year.

2022 was a record year for dairy farm profitability. Although costs increased dramatically during last year, rising farm-gate milk prices were able to offset the increase in costs experienced by many.

Unfortunately, as we look into 2023, we have all seen a sharp decrease in the base milk price. Hopefully the milk price will stabilise as we move into the second half of the year, but it’s important now to sit down and take stock of where our costs are likely to be for 2023. 

A very useful tool to forward project is the Teagasc eProfit Monitor Forward Projector. The projection tool uses the previous year’s data as a base and allows you to vary the costs in line with what is being paid in 2023. The programme will then forward project your cost change for 2023.

The main changes we are seeing (Figure 1) in costs for 2023 are that concentrates are currently averaging higher than 2022, while fertiliser has dropped. When projecting forward, we used an average meal price of €410/t for 2023 and an average fertiliser price of €700/t. Contracting costs are close to 2022. All other variable costs are likely to increase by 5-8%.

On the fixed costs side, ESB will average higher than 2022; interest rates have also increased. When all these changes are added together, you are likely to see a cost of production just slightly lower that 2022, but with a substantial fall in milk price received.

Knowing your costs early will allow you to make better financial decisions into the second half of the year.

Figure 1: Sample projected variable costs for 2023