Five times in the last nine-and-a-half years the dairy industry has been in crisis, says Luis Rodriguez, account manager with Zinpro, Corp. Tough times were seen in 2000, 2002, 2003, 2006, and in 2009. But, it’s never been quite this bad because low milk prices were coupled with high commodity prices. Historically, in bad times milk prices were low but so were commodities.
In times like these dairy producers are making decisions on spending, feed cost, ration ingredients, etc. Sometimes dairies aren’t making the right decisions, Rodriguez told audience members last week at the Economics of Profit luncheon in Modesto, Calif.
Rodriguez, in conjunction with the California Department of Food and Agriculture, analyzed data from 8 percent of the total herds in California, which represents close to 200,000 cows in four different regions of the state. “We analyze the data every year to see what dairies are doing and to learn what kind of decisions they should be making in the future,” noted Rodriguez.
Here is a look at the trends and what dairies have done to succeed even in times of crisis.
Look at cost on a per hundredweight basis rather than a per cow basis. “We need to be evaluating cost on a per hundredweight basis. If your bank is funding loans based on a per cow basis, teach them to look at cost on a hundredweight basis,” says Rodriguez. “We sell hundredweights of milk, that’s how you should check your cost of production.”
Maintain a high milk production. The data shows that in 2009 as milk production increases, cost per cow per year increases but income per cow per year does not change. However, as milk production increases cost per hundredweight decreases and milk income per hundredweight increases. In the data set analyzed, herds that averaged 60 to 65 pounds of milk had a cost of $3,126 per cow with an average cost of $15.66 per cwt. Herds that averaged more than 80 pounds of milk had a cost of $3,730 per cow with an average cost of $14.25 per cwt.
Management and feeding practices done in good times to increase milk production, should be done in bad. “Invest in practices and feeding strategies that prove to have an economic return in good and bad times. Every business decision should be analyzed with this thought in mind in good and bad times,” explains Rodriguez.
The same rules apply to organic dairies. “The data shows that organic dairies that produce higher milk yields had a lower cost per hundredweight than the low producing herds. Same principle as the traditional model just at a different scale,” says Rodriguez.
Look into contracting your milk. Two dairies in the data analyzed contracted the majority of their milk and they maintained a profit, making them successful over the rest of the dairies in 2009.
Holstein herds have been less profitable than Jersey herds during the past four years. Holsteins had an average feed cost of $8.30 per cwt with a total cost per cwt of $14.62. This resulted in a negative milk income of minus $0.52 per cwt. Jersey’s had an average feed cost of $9.33 per cwt with a total cost per cwt of $16.76. This resulted in a negative income of minus $0.07.
High milk yield improved profitability in Holsteins. On average, Holstein herds milking greater than 80 pounds had a cost of $13.64 per cwt and income of $0.67 per cwt. Meanwhile herds milking less than 70 pounds of milk had a cost of $15.00 per cwt and an income of minus $0.91 per cwt on average for the last four years.
High milk yield improved profitability in Jerseys too. Herds that averaged more than 55 pounds had a cost of $15.59 per cwt and an income of $2.44 per cwt. Jersey herds that averaged less than 50 pounds of milk had a cost of $17.67 per cwt and an income of minus $1.43 per cwt on average for the last four years. “Regardless of breed milk yield is important,” notes Rodriguez.
As milk production increases, feed cost per cow per year increases, but cost per hundredweight decreases. “Don’t go after your nutritionist because your cost per cow per day is high; that figure is meaningless unless you consider the milk yield of those cows. Go after what the cow is bringing you in return of that investment,” explains Rodriguez. “Consistently over time as milk production increases feed cost per hundredweight decreases.”
A higher milk yield reduced total cost per hundredweight ever year. Higher milk yield improved profitability in three out of the four years. “The higher yield herds made money in three out of the last four years,” says Rodriguez.
Herd size does not necessarily affect profitability. In the last four years a higher milk yield improved profitability at any herd size. “The answer is not size, but milk yield,” notes Rodriguez.
Feed efficiency is important. As feed efficiency increases feed cost per hundredweight decreases and milk income per hundredweight increases. “Herds with a higher feed efficiency made more money on average in the past four years,” says Rodriguez.
Two times and three times per day milking herds at similar milk yields have similar profitability.
Facility or parlor type had no major impact on milk income per hundredweight. “Regardless of facility type or parlor setup, herds with a higher milk yield had improved profitability over lower producing herds.”
There is more than one way to skin a cat, but if you don’t have a high milk yield it will be hard to be successful over time, high milk yield herds had a lower cost of production per hundredweight and a greater chance to breakeven in times of low milk prices, notes Rodriguez. "And, if you have to make cuts make sure you make cuts that don't affect milk yield. Milk yield is the most significant driver of profitability in California dairies besides milk price."
The trends show us that higher milk yield maximizes income per hundredweight in high milk price years and minimizes losses in low milk price years.