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MADISON - There are things all producers can do, regardless of the size, the scope, of their business, regardless of the size of their wallet, that can help the profitability of their business. 

Steve Bodart, principal business consultant for Compeer Financial, explored what producers can do to improve profitability during a World Dairy Expo seminar on Oct. 2. 

Bodart's information came from a statistical analysis of financial and production data across the Midwest done by Compeer Finanical's dairy consulting team and Zoetis from 2006-2017. The goal of the study was to find out what distinguishes the most successful dairies from others - what drives profitability year after year.

The study looked at 93 farms, ranging in size from 500 - 4,700 cows with an average of 1,087 lactating cows – one herd had 95 cows – analyzing 90 variables from 489 farm-year records. Although 2015 and 2016 did not show profitability, "every year at least one person made money and someone lost money," Bodart said.  

"There is a lot of diversity out there," said Bodart. "The last few years have not been good and that put us in the position we are in today of trying to figure out our next move."

The most profitable years from the study were 2007, 2011, 2014. The years of biggest loss were 2006, 2009, 2015, 2016 while 2008, 2010, 2012 and 2013 were average years. The most profitable years had the highest milk price, but also the highest feed costs. 

From those 11 years of data, the results showed six financial drivers where money is made and lost, that separate top financial performance herds from their peers – somatic cell count (SSC), energy corrected milk (ECM), net herd turnover cost, death loss, pregnancy rate and heifer survival rate. 

Somatic cell count

Topping the list as the biggest impact on profitability was somatic cell count. As SCCs rose on farms, profitability dropped because SCC affects ECM, death loss, days open, pregnancy rates and herd turnover.

In the study, the top third of farms had SCCs of 132,000 cells/mL and produced 88 pounds of ECM per cow per day compared to a SCC of 228,000 cells/mL producing 77.5 pounds of ECM per cow per day for the bottom third of farms. That difference between the top third and bottom third of farms resulted in $173,000 a year over 11 years for a 1,087 cow herd.

As SCCs go up, the days open start to go up. Herds that had a higher SCC tended to also have a higher death loss. A .4 SCC increase would also reflect in an increase in death rate, Bodart said.

SCCs also negatively affected pregnancy rates.

"If I look at the herds that I worked with, where we had a cell count problem, it was hard to get the pregnancy rate to where we wanted it until we got the cell count down," said Bodart.

"Based on what we are seeing, it (SCC) shows to be a little bit more significant than what the university studies have shown," said Bodart. "Basically we saw, for every 100,000 increase in cell count about a 5.5 pound decrease in milk production when looking at farm herds."

Energy corrected milk

The study found that a decrease in milk production from high SCCs affected the pounds of energy corrected milk shipped per cow per day, which in turn affects profitability.

Energy corrected milk is standardized hundredweights of milk, "because every farm has different components, different butter fat, different protein, we’re standardizing those hundredweights in order to do an apples to apples analysis,” said Bodart. 

The top third of farms in the study showed 92.7 pounds of milk produced per cow per day versus the bottom third of farms at 72.7 pounds of ECM per cow per day, a difference of 89 cents per hundredweight. The difference in profit between the highest third and lowest third farms was $209,000 a year for a herd of 1,087.

"Milk production is key," said Bodart. "We have to have energy corrected milk. It's not pounds of fluid milk."

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Net herd turnover cost

The study found that the economic cost of turning over the herd had a very high correlation with herd profitability.

This involves looking at the adult herd, looking at the number of animals that leave the herd in a year’s time, Bodart explained. 

"That could be left as a cull. It could be a dairy sale. It could be a dead animal," said Bodart. "How many of those animals left times their balance sheet value, which is relatively close to what the cost of raising a heifer would be."

Turnover of the adult herd resulted in "huge, huge dollars," Bodart said. "As turnover goes up there is a huge correlation to cell count. Nobody likes a high cell count so they are turning cows." 

The amount of ECM is decreased, resulting in a difference in profitability between the top third and bottom third farms of $409,000 a year for an average herd, or $375 a cow per year.

"We need to get cows into second, third, and fourth lactations in order to maximize the amount of milk we get out of those cows. We’re spinning those cows that fast, we don’t have that many cows that are in that third lactation," said Bodart.

In a second lactation, cows produced 15% more milk than the first lactation cow. A third lactation cow produced an additional 10%, according to Bodart.

"So we want to get as many cows as possible into that third lactation," he added.

Death loss

Death loss, as can be expected, negatively affects profitability. The best third of farms in the study had a death loss of 4.3% compared to the worst third with a death loss of 10%, a difference in profitability of 56 cents per hundredweight.

Herds with high SCCs were turning over over cows at a higher rate than those with lower SCCs.

"As we turn cows, as our cell count is higher, our cost of production is also going up, and our profitability is deteriorating," said Bodart. "Energy corrected milk is also looking less on those farms. That difference, a 6% difference in death loss, was a $150,000 difference in profitability on these dairies each and every year."

Pregnancy rates

"As pregnancy rates improve, our profits improve," Bodart said. 

The study found a negative correlation with low pregnancy rates, however, the study didn't include data on pregnancy rates for the first four to five years.

The top third farms in the study had a 21-day pregnancy rate at 27%, producing 90.6 pounds of ECM per cow per day and the bottom third of farms was at 18%, producing 84.1 pounds of ECM per cow per day. The difference in profit from those top farms to the lower third farms came to $156,000 a year for an average herd.

"If I look at the herds that I worked with, where we had a cell count problem, it was hard to get the pregnancy rate to where we wanted it until we got the cell count down," said Bodart.

Higher profit dairies are also spending more on breeding costs but are achieving a higher pregnancy rate. 

Bodart said that means, "they are using better bulls. They’re getting the cows settled, using the best bulls to continue to perpetuate the success in their herd. Some of it would also be (attributed to) more sexed semen used in these herds."

Heifer survival rate

The best third of the farms achieved a 97.5% heifer survival, while the bottom third was at 91%.

"It costs a lot of money to raise a heifer. It takes a lot of days of milk to recover the cost of raising a heifer. We need to keep those animals around as long as we can for that cost to be spread out. Heifer management is important," Bodart said. "We don’t want to raise all kinds of heifers and have all kinds that are causing problems. We need to raise the right amount of heifers and need to keep them healthy so we can get the maximum return on every heifer."

What does it all mean?

"In order to achieve max profitability on dairies, we need to start with excellent animal husbandry. We cannot skip that. It all starts there. There are a lot of side things," stressed Bodart. "Excellent animal husbandry alone will not guarantee success. There’s also other outside influences that we need to look at. But if we look at the production things, these are the things we need to focus on in order to maximize our earnings on the dairy."

Bodart said the study will continue and more information will be added. They are also evaluating pregnancy rates and breeding costs, looking at veterinary and animal health costs, which right now show no correlation to profitability. They will also be looking at labor costs and technology. 

Bodart said they feel "very confident" in the six criteria from the study and in how important they are for dairy businesses. 

Carol Spaeth-Bauer at 262-875-9490 or carol.spaeth-bauer@jrn.com. Follow her on Twitter at cspaethbauer or Facebook at https://www.facebook.com/carol.spaethbauer.

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