The definition of a cash cow is – after the initial capital outlay has been paid off – the animal continues to produce milk for many years to come and requires low maintenance costs. This does not necessarily happen in the real world on a dairy farm. However, there are some basics related to producing a cash cow that continuously get overlooked. These relate to managing purchased feed costs for the mature animals and the young-stock as well as knowing the forage and feed inventory for the entire farming operation. Home-raised feed inventory is the nutritional foundation from which everything else builds to maintain ration consistency, animal performance and profitability. The old saying that knowledge is power, or you can’t improve what you don’t measure or track, is very true. Knowing the farm’s inventory and recognizing the limitations in the cropping or ration program helps a producer make more informed decisions and have a higher success rate for achieving profitability.

The Penn State Extension Dairy Team has been working with dairy producers across the state to study their ration programs for all animal groups as well as their forage and feed inventories. There have been some common themes across farms. Many operations do not receive an itemized listing of purchased grain mixes. The loose or bagged feed prices are lumped together so it makes it very difficult to know what each feed costs. The other challenge is the uncertainty on what the dry cows and young-stock are actually consuming, especially for home raised forages. The end result is producers don’t know the purchased feed costs for the year on each animal group and the impact to forage inventories. Both items can put a producer at a distinct disadvantage when feed and forage prices are at record levels.

When examining farms that have completed their ration and crops program, it is not unusual to have the annual milk cow purchased feed cost per cow come to $1,600-$1,800/cow/year or more, not including the value of  home raised feeds. Historically we would want producers to achieve a benchmark of at least $4,000 milk income per cow, but with purchased feed at these levels, farms can get into cash flow problems very quickly even if they are reaching this income target. However, when purchased feed cost is unknown, how will decisions be made to correct the problem? Add to the scenario not knowing the purchased feed costs for dry cows and heifers and feed costs for the farm can get out of control very quickly.

The price volatility the dairy industry has experienced with feed, fuel and fertilizer has forced many producers to re-examine the way they do business. Not only is it just grain prices that are high, but forage prices as well. Some farms are seeing daily milk cow feed costs per cow between $7 and $8. This may be tolerable when milk price is $24/cwt. but it will not be when milk price drops to $17-$19/cwt. Ultimately it comes down to knowing your margin (breakeven income over feed costs). Even though producers have been blessed with high milk prices in 2011, many farms are no better off financially than they were in 2009. Feed costs are so high for their level of milk production these farms are not close to the Net Margin needed to pay all other expenses. There have been a lot of missed opportunities in 2011 to maximize margin that may come back to haunt folks as we move into 2012.

Figure 1 illustrates the trend of 66 dairy farms’ milk income, income over feed costs (IOFC), and feed costs per cow per day from January 2009 through August 2011. The trend for milk income per cow per day has increased significantly over the past 2-plus years where feed costs tended to increase to a lesser extent. If the three year cycle of low milk prices follows the pattern of 2006 and 2009, then 2012 is the next cycle of low milk prices. However, if feed costs continue to increase, IOFC will drop considerably. Now is the time to evaluate feed inventories and to plan next year’s cropping strategies. This is where opportunities lie to minimize purchased feed cost and maintain a consistent ration for the cows.

Cash Cow 101: Ration and cropping strategies

Figure 1. Trends for milk income, feed costs and income over feed costs per cow since 2009.

The Penn State Extension Dairy Team helps dairy producers track IOFC, makes recommendations to improve margins and develops cash flow plans to determine other areas of production that are inhibiting positive cash flow. The first step is to determine where the dairy is currently and where it needs to go in order to reach profitability and future goals. Working with a Profit Team can help producers track changes and explore different solutions to reaching their goals. Penn State is offering workshops in 2012 to help producers determine their feed inventory; costs of producing home-raised feeds, breakeven IOFC and breakeven class III milk price. Each workshop has several specialists present to work one-on-one with producers to get their cash flows completed within three hours. Contact Virginia Ishler, (814) 863-3912 or Rebecca White, (814) 863-3917 for more information about the workshops.

Workshop dates and locations include:

January 2012:
24 – Lancaster County: Penn State Cooperative Extension Office - Closed
25 – Bradford County: Edgewood Restaurant, Troy
27 – Berks County: Blue Mountain Family Restaurant, Shartlesville
31 – Centre County: Visitor’s Center, State College

February 2012:
2 – Cambria County: Keystone Restaurant, Munster
3 – Lebanon County: Penn State Cooperative Extension Office
14 – Huntington County: Penn State Cooperative Extension Office
16 – Cumberland County: Penn State Cooperative Extension Office
22 – Crawford County: Holiday Inn Express, Meadville
23 – Fayette County: Farm Credit Office, New Stanton
28 – Somerset County: Penn State Cooperative Extension Office

March 2012:
7 – Blair County: Penn State Cooperative Extension Office
13 – Franklin County: Hoss’s Steak and Sea House, Chambersburg

Source: Virginia Ishler, nutrient management specialist, and Rebecca White, senior project associate, Penn State Extension Dairy Team