Dairy farmers were told to forget focusing on feed conversion ratios, milk yield a cow and cost a litre as measures of success in their herd, and to focus instead on margins a cow.
That was the advice from Greg Bethard, chief financial officer for several dairy businesses in the US, including Pagel’s Ponderosa Dairy and Dairy Dreams, which milk a total of 9,000 cows.
Mr Bethard said litres of milk produced a cow and cost a litre were outdated measures of performance. He said: “What does cost a litre actually tell you? It totally ignores the value of the milk and income. Instead you should be focusing on the breakeven milk price. This is an ideal measure,” he said.
Top 10 tips to making money in the dairy business
- Stay at 100% every day – make sure your buildings are running at capacity
- Healthy fresh cows
- Minimise replacement costs
- Realise quality and component premiums
- Maximise income over feed cost (IOFC)
- Procure high-quality forages
- Generate cow pregnancies
- Cut cost intelligently
- Control labour costs/litre of milk
- Make low-cost milk
(Source Greg Bethard)
Speaking at the Total Dairy Seminar in Gloucestershire last week, Mr Bethard said if farmers could lower their breakeven milk price, they would be better positioned to ride the volatile times.
“Farmers need to be in the top 25% of breakeven milk price so they can compete. Dairy is essentially a commodity manufacturing business and in any commodity market, the secret to success is producing that commodity cheaper. You need to start looking at your cows as an income-generating asset,” he said.
Mr Bethard said farmers should view volatility as an opportunity. “We don’t want a stable milk price. Volatility is a sign the market is healthy. It also means there is more opportunity [for profit] when prices go up,” he said.
The three main factors that dominate the cost of producing milk were feed costs, replacement cow costs and labour costs, said Mr Bethard. And when making decisions about all three, farmers needed to consider margins.
Income over feed costs (IOFC)
He said feeding decisions should be based on income over feed costs (IOFC). This is the milk revenue minus the feed cost.
Example IOFC calculation: 35 litres (litres/ cow) x £0.22p (milk price) – £3.40 (feed costs a cow a day) = IOFC of £4.30
In the US, Mr Bethard said the current IOFC was about £5 a cow a day. However, while he did stress how important the measure was, he said it was a bad metric to compare month by month as cow factors and market factors would influence IOFC.
If farmers used a static IOFC, whereby market prices were fixed (using constant feed and milk prices over time) and include milk yield, components and dry matter intake as the variables, then it would be a good barometer for how well the herd was performing on a month-by-month basis, he added.
“It will tell you how well your cows are performing, despite poor market conditions, and whether they are performing better or worse than the previous month. This will help you figure out what the opportunities are and how to become more efficient producers.”
The other major cost of producing milk is replacement cow cost. Mr Bethard said farmers needed to calculate the cost of replacements. This can be done by: cost of replacements – value of the sold cows / litres of milk sold.
In the US, Mr Bethard said the value of cull cows has been so good, they don’t keep any cows that are not performing. “You don’t want to keep cows that are not producing for so long that they are not worth anything. You need to sell cows while they are still in prime condition.
“One of the best ways you can reduce net herd replacement costs is to prevent dead animals,” he added.