In a commodity business such as dairy, being just a little bit better than your neighbor is the best way to ensure survival.
Steve Bodart, a senior agribusiness consultant with Compeer Financial, lists six benchmarking factors to consider to ensure your competitiveness. The benchmarks are based on an analysis of 90 variables analyzed from 425 year-end financial records from dairy farms in Iowa, Michigan, Minnesota, Ohio, South Dakota and Wisconsin. Herds ranged in size from 500 to 4,700 cows, with an average of 1,071 cows. The study started in 2006.
“The study points out that there are farms who are consistently better managers and have higher net income than their peers,” says Bodart. “The statisticians found that there were just six factors that account for 85% of the variation in profitability when calendar year is removed from the variables.”
Somatic Cell Count (SCC). While SCC premiums are eroding, they are just the icing on the cake when it comes to milk quality. There was a 5.2 lb difference in energy corrected milk between the top 25% of herds and bottom 25%. That equates to $142/cow difference between the two groups. Days open and death loss were also lower in the lower SCC herds.
Energy Corrected Milk. For these Midwest herds, the analysis suggest tank average has far less to do with profitability than the pounds of butterfat and protein shipped daily. “If you’re not shipping 6 pounds of combined fat and protein daily from your Holsteins, you might not be in business long. For Jerseys, you need to ship 5 ¼ lb,” says Bodart.
Net Herd Replacement Cost (NHRC). Net herd replacement is a somewhat complicated formula that includes the number of cattle culled, died or sold times the replacement value minus the salvage value of cull cows and dairy sales divided by the amount of energy corrected milk shipped during a given period. As NHRC increases, profits decrease.
“There’s a 44¢/cwt difference in net herd replacement costs between the top and bottom herds,” he says. The key to lowering NHRC is to milk young cows longer so that they become second, third and fourth lactation animals. “Second lactation animals produce 15% more milk than first lactation heifers, and third lactation cows produce 10% more milk than a second lactation cow,” he says.
Death Loss. The average death loss in the herds studied was 6.2%. But the most profitable group had a death loss of just 4% while the least profitable group had a death loss of 10%. “The difference in profitability between the top third and bottom third when evaluating death loss was $185/lactating cow,” says Bodart.
Pregnancy Rate. The top herds had an average pregnancy rate of 26% while the least profitable herds were less than 19%. When rBST was available, some herds didn’t worry about pregnancy rate because they could keep cows somewhat profitable with supplementation. Some of these herds had 15% to 18% of their herd 300 days in milk or more. “That is no longer acceptable,” says Bodart.
Heifer Survival Rate. Bodart notes that there was only a 2 percentage point difference in heifer survival rates between the best and least profitable herds, 95% versus 93%. “But when you have that difference in heifer survival, you also have a difference in morbidity,” he says. So even though heifers survive a bout of respiratory challenge, for example, they will not perform as well as cows as their healthy herd mates.