Many variables contribute to the economic impact of robotic milking

Dan Hansen

Seymour - Installation of automatic milking systems (AMS) continues to grow throughout Wisconsin and neighboring states.

Larry Tranel, dairy field specialist with the Iowa State University Dairy Team, said there is the potential for 10 percent of producers to be milking with a robotic system by 2025. Tranel  spoke recently to a group of more than 100 northeastern Wisconsin dairy industry professionals, including many producers contemplating making the move to an AMS.

Tranel advised his audience that two important factors need to be considered when comparing an AMS to a conventional parlor system. “A slight change in the milk price or change in milk production can significantly change the financial impact,” he stressed. “Secondly, producers and consultants currently have limited research data on which to base their assumptions for projecting costs and income.”

Herd size, financial projections

He noted that herd size is important in calculating the number of needed AMS units. “One AMS can handle 55-65 milking cows, and when including dry cows, a 72-cow herd per unit can be feasible depending on milk production.”

According to Tranel, milk prices should be estimated as a long-term projected average. “Estimated cost per AMS should include a new building or modifications to existing structures to house the robots and provide adequate alleys for smooth cow flow,” he advised. “Costs of $15,000 to $20,000 per AMS for housing can be expected, with an estimated cost of $200,000 per unit, although multiple units can bring price discounts.”

Currently, the useful life of AMS units remains an unknown variable, Tranel noted. “Seven years of useful like is a very conservative estimate, but more than 15 years could be risky. Also, the value of a unit after its useful life still hasn’t been clearly defined,” he said.

Securing the most favorable financing is also an important factor in proceeding with installing an AMS. “A loan should display the rate which represents cost of interest paid, the opportunity cost of the owner’s money, or a combination of both,” Tranel said. “The insurance rate is per $1,000 of the AMS value, and should cover the full investment less salvage value.”

Labor, milk production

Reducing labor and labor costs are key factors for investing in an AMS. “Current hours of milking for the designated herd size in a conventional parlor needs to be compared to the anticipated hours of milking labor after the AMS is installed,” Tranel stressed. “Labor rates should be calculated after the training period, and a reduction in time managing labor is likely,”

The AMS herd management software provides valuable information including rumination, milk conductivity and cow activity. “The information can produce labor savings from heightened heat and mastitis detection and faster identification of sick cows,” Tranel affirmed.

He noted that producers going from 3 times per day milking may expect a 6 to 9 percent decrease in production initially, but said those going from milking twice a day, could see an increase of 3 to 5 percent, or more. “Somatic cell counts also may increase initially but should drop after the adoption period,” he added.

Feed cost per pound and intake level changes are seldom taken into account, Tranel remarked. “This can be significant because milk production and feed intake have a positive correlation,” he asserted. “Because an AMS utilizes pelleted feed during milking, feed costs may increase but could decrease as cows are individually fed.”

With a robotic system annual electricity use could increase up to 150 kWh per cow, according to Tranel. “Chemical and supply costs may be higher in some instances, but most producers will see a slight decrease,” he remarked.

Example of an AMS conversion

Tranel crunched some numbers based on converting a 144-cow herd to an AMS with a current milk price of $17.50 per cwt. The conversion included installing two units at a cost of $200,000 each and an annual maintenance cost of $7,000 per robot.

“The producer expects a 10-year useful life from the robots, and estimates each unit can be resold for $40,000,” Tranel said. “Using a combination of his own and borrowed money, the interest rate is 5.5 percent.”

The producer expects daily labor hours to drop from nine to three, and heat detection is projected to drop from 40 to 15 minutes per day. “His herd has a current bulk tank average of 70 pounds per cow for milking twice per day,” said Tranel, “and a 7 pound (10%) per-cow increase is projected along with a 5 percent SCC drop. The producer expects to gain $35 per cow due to better availability of cow production, reproduction and health information.”

A very small decrease of one-tenth of a percent in feed cost is anticipated, along with a 1 percent decrease in herd turnover. “An annual per-cow increase of $8.25 in electricity is projected and a $3 savings per cow in water usage,” Tranel said.

Budget analysis

“Reducing SCC by 5 percent yielded an additional $1,217 in premiums, and expected gains from improved herd management yielded more than $5,000,” he noted. There was a total income increase of $63,000.

Decreased labor expenses, lower heat detection costs and other reduced costs, also had a positive impact on the bottom line. “The total decrease in expenses added to the increased income saw a total positive impact of $102,000 from adopting an AMS,” Tranel remarked.

He reported that depreciating the AMS over 10 years and charging 5.5 percent interest against the purchase value resulted in an annual cost of $60,200. There was increased  maintenance and repair cost on the robots, in addition to higher feed and utility expenses. “The total increased expenses, and total negative impact, was $101,000,” he related.

“The net positive financial impact is calculated at $1,391 for this example, but quality of life improvement from a flexible management schedule and a structured milking schedule is valued at $9,000, so the net positive impact becomes $10,391,” Tranel explained.

Summing up, he suggested, “The adjusted value of the AMS depends heavily on the variables used and the quality of life gained from installing a system.”

Larry Tranel,
Dairy Field Specialist
Many robotic milking systems, like this Lely AMS, are being installed on dairy farms throughout Wisconsin.