The outlook for the remainder of 2026 and into 2027 looks positive. However, into 2027, margins may begin to tighten. Feed costs remain relatively favorable, but milk production is increasing. This rise in production is putting downward pressure on milk prices. Programs such as Dairy Margin Coverage and Dairy Revenue Protection are in place to help farms manage risk. One way to manage risk is to take a deep dive into specific production costs.
Understanding Cash Flow
Regular, consistent reviews of the dairy’s finances are key to managing risk. Income and expenses should be examined not only at the whole-farm level but also per cow or per cwt. Calculating costs and income on a per-cow basis allows for easier comparisons of the farm from season to season or year to year. To keep comparisons accurate, any prepaid or unpaid bills need to be accounted for in the year in which they are used, not when paid.
Value Health Events
Assigning value to health events helps understand the full weight of disease costs on the operation. Direct costs, such as drugs, veterinary services, and discarded milk, are easier to calculate. However, hidden costs have a much greater impact. Hidden costs include those not directly visible, such as effects on reproduction, decreased milk production, and diminished cow value.
Understanding the preventive costs of a disease will help paint a more complete picture of how health events impact the farm financially. While preventive costs may be categorized as operating or management costs, evaluating disease costs on a per-cow rather than a per-case basis will also allow for easier comparisons between years. Calculating cost per cow will also determine how changes in disease incidence or disease management impact the farm financially.
Cattle Inventory
The demand for beef has given dairy farmers the opportunity to increase profitability through beef sales. However, the continued use of beef on dairy has had a growing impact on replacement availability. Heifer numbers in the US have decreased by approximately 20% over the past 10 years. Decreasing replacement numbers have driven heifer costs to $3,000 per head.
One way farms can manage risk is to keep up with heifer inventories. Not only would purchasing replacements be costly, but a lack of replacements can also affect culling decisions. Without a heifer in line to fill a stall in the lactating barn, cows may be held on to for too long. Keeping low-producing cows for the sake of having a stall filled will decrease farm profitability.
