Cut Costs Not Profits

Robb D. Wock – DPC, Purina Animal Nutrition LLC (507) 696-6351

All of us understand that Feed is the largest single cost on a Dairy, comprising 50% or more the cost of producing 100 pounds of milk.  With the current economic cycle nutritionists are challenged to cut feed costs as a means of improving cash flow & dairy income.  And while cutting costs can improve cash flow, these measures also impact short & long term profitability.  So I thought it was timely to discuss which factors will have the greatest impact on income and your bottom line.

Several years ago Michigan State University conducted a study on a 120-cow farm that bought everything NEW.  They ranked 42 factors and how a 10% improvement would affect profitability. While your farm may be of a different size the relative affect between factors would still be similar.  For the sake of time & space I will cover the Top-5 factors only.

No surprise that Milk Price / hundredweight is No. 1 and has the greatest effect on profitability.  A 10% improvement resulted in over $24,000 profit increase.  However with milk prices plummeting even further here in 2018 the best thing you can do in this area is to maximize quality premiums for fat, protein, total solids and low somatic cell counts.   This can add $2.00 or more / hundredweight.

Increased production was No. 2.  If the cows in the 120-cow herd increased production by 10% and other related factors such as feed & utilities are adjusted accordingly, profits improve by nearly $8,500.  Additionally the increase in profit means the producer can cull 12 cows producing milk below the herd average without decreasing milk income.  This culling opportunity saves in total herd feed costs with less pressure on labor, equipment & facilities.

Depreciation was No. 3 on the list, saving over $5,000.  While this figure may not be representative of most Dairies because of the fact that all the equipment & facilities were bought NEW in this example, it illustrates the importance of properly maintaining existing equipment rather than purchasing new ones.

A 10% decrease in labor cost brought Labor in at No. 4.  While decreasing wages, benefits or work hours could lower costs, none are likely to improve efficiency or employee morale.  On the contrary increasing pay or using incentives may improve efficiency of current workers or even attract quality employees.

Feed Cost is ranked at No. 5.  The Michigan State study found that if the price of all feed purchases decreased by 10%, profit would improve by $4,500.  In this example the price of Soybean Meal was $350/ton.  Interestingly the cost of a commercial concentrate ranked 16th out of the 42 factors.  Two California studies in 2006 & 2007, which included over 150 Holstein, Jersey & crossbred herds between 100 & 4,600 cows/herd showed that besides milk price, “solids corrected milk yield” was the MOST important determinant of profitability – regardless of feed cost!  The Milk price averaged $11.46/cwt in 2006 and $17.69/cwt in 2007.  The highest producing herds minimized losses during low milk prices & maximized profits during high milk prices.  This study indicates that feed changes which reduce milk production will reduce profits, and thus our feeding philosophy overall shouldn’t change much.

There are some actions that will improve the output side of the ledger.  For example placing money into cows that give the best return, and reducing cow-turnover & calving interval.  Fine-tune weighing, mixing & feeding procedures dramatically improves efficiency.  Work to prevent sorting as much as possible, and make sure your nutritionist is “least-cost-balancing” all your rations.  Also make sure you are working with suppliers who understand the differences & advancements that have been made in nutritional technologies.  This improves digestion efficiencies & lowers costs associated with Metabolizable Protein and other expensive ingredients.  Purina Animal Nutrition is at the forefront of these technologies so we have an advantage in helping you make the best feed decisions.   

It’s also never too early to look ahead to the next growing season.  For example I’ve run into farms that are facing a fairly large inventory of poor quality haylage.  Maybe it makes sense to discuss the possibility of harvesting some “lush” first crop (180 RFV, 220 RFQ) to feed with the poor Haylage?  Or maybe a customer has poor-digestability Corn Silage.  Now is likely the time to review your seed selection … there may still be time to change your order!  In this case look for Corn Silage that is high in NDF digestability and contains good starch levels.  At All-American Co-op we have a full staff of Agronomists to work with who will interject with our nutritional staff to help you make the best decisions for your operation.

Last but not least, keep in mind that if you trim your rations today and it doesn’t negatively affect either milk production, reproduction, or animal health, than these changes are also NOT likely to improve your bottom line if you add them back in when milk prices rebound!  Never forget the lessons learned from low prices … … no matter how good it gets. 

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