Don't cut your dairy profitability

Oct. 19, 2017

How is your time best spent? Trying to cut expenses by a dollar per cow or a penny per hundredweight? For every hundred cows you milk, you will save $100 for every dollar you cut in production costs per cow. If each of those cows are putting 24,000 lbs. of milk in the tank each year, finding one cent per cwt in savings will save $240 per year. A penny per cwt. trumps a dollar per cow in 2016.

Sound familiar? That was the closing paragraph from last month’s column, and a good starting point today. Since March, we have not seen any good news in the milk markets. Belt tightening must continue which is particularly worrisome as the time to plant crops rapidly approaches.

As mentioned last month, it is really, really important to look at the long-term, as well as the short term, implications of costs that are cut now on future productivity and potential profitability. Take care not to make knee-jerk cuts in feed costs. As the single biggest cost, it is an easy target, and should not be overlooked. That said, losing pounds of milk, components, and/or condition can exact a toll down the line.

The Ohio Farm Business Analysis Dairy Summary shows time and again that at any particular feed cost per cwt, there will be farms making money and farms losing money. But a look at the data for the last 4 years clearly shows that the farms that achieve the highest net return per cow consistently sell more milk per cow than the rest of the farms. An average of more than a ton per cow per year more over the last 4 years. More milk to spread the feed costs over results in an average feed cost of $1.32 per cwt less for the high 20%.

Table 1. Ohio Farm Business Analysis and Benchmarking data for 2011 through 2014. High 20% based on net return per cow.

  2011 2012 2013 2014
Average of all cows
Cows 227 223 259 285
Milk sold/cow 24,250 23,632 24,635 24,217
Feed cost/cwt $12.68 $11.78 $12.10 $13.03
         
Average of high 20%
Cows 323 238 211 317
Milk sold/cow 26,183 25,434 26,812 27,223
Feed cost/cwt $11.18 $10.45 $11.31 $11.36

While you are working with your nutritionist to be sure there are not ingredients in your ration that have outlasted their usefulness, make sure your components are in line. The class III price is based on 3.5% fat and 2.99% protein. We are in a component – based market in Federal Order 33, so if your components are below these levels, your base milk price will be even lower than the currently pitiful Class III prices. This is an issue that is becoming all too real for many farms.

There are many important decisions to be made as costs must be cut. Tap in to the Dairy Issue Briefs at http://dairy.osu.edu to help identify opportunities to control costs and concerns to consider. The Dairy Issue Briefs were originally developed to help dairy farm families deal with the challenges of 2009’s low milk prices. Time to pull them out again.

 

Author: Dianne Shoemaker