What drives financial success for a dairy operation?

Results of a large, ongoing study of Midwest dairy operations, show six factors separate top financial performance dairy operation herds from their peers.

Compeer Financial’s Dairy Consulting Team joined forces with Zoetis to statistically analyze financial and production data from dairies across the Midwest. The study analyzed variables on 489 farm-year records from herds based in Ohio, Michigan, Wisconsin, Minnesota, Iowa and South Dakota over a eleven year period, beginning in 2006.

Dairy operation size varied from 500 cows to 4,700 cows with an average of 1,087 lactating cows.  On average each dairy farm had five year-end records.

The following six factors account for 85% of the variation in profitability when calendar year is removed from the variables.

Somatic Cell Count

The difference between the most profitable one third and the least profitable one third was a somatic cell count of 152,000 (132 vs 284). The big differences were that energy corrected milk averaged 88.0 lbs./cow/day in the most profitable group as compared to 77.5 lbs./cow/day in the least profitable group or a difference of 10.5 lbs./cow/day. 

Energy Corrected Milk

The difference between the most profitable one third and the least profitable one third was $192/lactating cow annually.  A Holstein herd needs to be producing over 6.0 lbs. of combined butterfat and protein/cow/day and a Jersey herd needs to be over 5.25 lbs. combined pounds. Additionally, high energy corrected milk herds had an improved 21 day pregnancy rate, lower feed cost/hundred weight milk, less days open, lower death loss and reduced somatic cell counts.

Net Herd Turnover Cost

The difference between the most profitable and least profitable operations was $1.08/hundred weight energy corrected milk ($.91 vs $1.99). Herds with the lower NHTC had lower cull and death rates which allowed them to have a higher proportion of the herd in third lactation and beyond.

This is important, as second lactation animals produce 15% more milk than first lactation heifers and third lactation cows produce 10% more milk than a second lactation cow.  Herds with low NHTC also tend to have lower somatic cell counts. The difference in profitability between these two groups was $376/lactating cow annually.

Death Loss

The difference between the most profitable and least profitable herds for death loss was 5.7% or 4.3% death loss as compared to 10.0% death loss. A large majority of death loss occurs in early lactation. During the transition period from dry off, until 60 days in milk, there is a significant amount of cash outlay with minimal revenue.

So reducing early lactation death loss is crucial to improving the profitability of a dairy herd. The difference in profitability between the top third and the bottom third when evaluating death loss was $138/lactating cow annually.

Pregnancy Rate

The most profitable herds have pregnancy rate averaging 27.4%, whereas the least profitable herds have pregnancy rates of 18.1%. The higher profit dairies spend more on semen as a result of seeing higher conception rates, and, in turn, continue perpetuating their advantages into future generations of the herd.

Heifer Survival Rate

All the herds within the analysis were doing a good job with heifer survival rates. However, the high profit herds, were doing slightly better with heifer survival rates at 95%, whereas the low profitability herds averaged a heifer survival rate of 91%.
 
Regardless of if you are looking to improve one of the factors, or all six characteristics addressed above, in order to maximize the profitability on a dairy, the basics of excellent animal husbandry need to be in place.  Animal husbandry as assessed by health and production parameters allow the operation to maximize energy corrected milk, pregnancy and heifer survival rates, while minimizing net herd turnover cost, somatic cell count,  and death loss.

Bodart is the senior dairy consultant for Compeer Financial