The dairy industry in 2015 is experiencing a similar down cycle to 2009 and 2012. These volatile market swings are not new or unexpected. There are management practices that can be implemented to help sustain the dairy operation.
By: Virginia Ishler, Extension Dairy Specialist, Penn State University
Last year at this time producers were receiving record high milk prices and now the current milk price is $9.00/cwt less. Unfortunately farm expenses do not decrease accordingly and the challenge is sustaining a business when income is dramatically reduced. This downturn in the cycle is not new and is similar to what was experienced in 2009 with extremely low milk prices and in 2012 with extremely high feed prices. There are strategies that can be implemented to survive these volatile cycles.
As in any business there are the short and long term plans. Since the projections in milk price do not look promising implementing strategies now are paramount. The first step is not to short change the cows on nutrition. Milk income has to be optimized and with a low milk price making ration changes that result in reduced milk production is not prudent. There may be options to bring feed costs/cow more in line. In 2014 producers who were controlling their feed costs showed approximately 30% of their income going towards feed costs. Currently these same producers are hovering between 40 to 45%. The herds experiencing difficulty are already over 50% of their income going towards feed. So far weather conditions have been good for hay crop forage and corn for silage. Optimizing forage inventories, allocating forages based on quality to the various animal groups, and feeding a high forage based ration can be strategies to control purchased feed costs. Now is the time to start having a conversation with the nutritionist about what is doable for the herd.
There are several management practices the producer can focus on during these tough times. Revisiting feeding management on the farm may be warranted. Focus on testing dry matters on forages routinely and adjust the rations accordingly. Monitor intakes for the herd or group, keep feed in front of the cows 22 hours/day, and provide a separate group for fresh cows and/or two year olds if facilities permit. In TMR fed herds, check particle size to avoid sorting problems and analyze the ration to confirm it is being mixed properly. In component fed herds, weigh the grain scoops to confirm weights on new feed deliveries to minimize over or under feeding. Some of these practices require a time commitment and minimal monetary expense however they can greatly affect animal performance and efficiency.
The Extension Dairy Team's work with cash flow plans the last few years show an average gross milk price break- even of $19.00/cwt. fairly consistently. The projected gross milk price currently is around $16.00-$17.00/cwt. When evaluating operations from the most to least profitable, the areas that don't fluctuate much between groups are dairy direct expenses and most operating expenses. The exceptions usually revolve around repairs and hired labor expense. The one constant between herds with varying break-even is their purchased feed cost, both forage and concentrates and the direct crop costs. This is the area having the greatest impact on cash surplus. Forage quality and quantity are the big drivers to maintaining a positive cash flow. A long term approach to surviving the down turns in the market cycle is to evaluate cropping strategies, which include double cropping and alternative crops. Implement best management practices to improve or maintain the highest quality forage for the lactating cows and the right quality forage for the other animal groups. Producers who have embraced these concepts are better prepared to deal with the downturn in milk price and milk income.
Action plan for sustaining the dairy operation during times of market price volatility
Goal: Assemble the appropriate advisers to discuss plans for developing, implementing and monitoring strategies related to cropping and feeding management practices within the next two months.
- Step 1: Evaluate the farm's current status on forage inventory and discuss plans to make improvements.
- Step 2: Evaluate ration scenarios for all animal groups incorporating more forage and determine if forage inventory is sufficient.
- Step 3: Evaluate feeding management practices that will work for the farm. Assign new tasks as appropriate. Include a monitoring tool so results can be viewed on a monthly basis.
- Step 4: Do a cash flow plan projection to assess how management changes will impact farm finances.
- Step 5: Determine the operations break-even IOFC/cow and monitor monthly.
Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows income over feed costs is a good way to check that feed costs are in line for the level of milk production. Starting with July 2014 milk price, income over feed costs was calculated using average intake and production for the past few years from the Penn State dairy herd. The ration contained 63% forage consisting of corn silage, haylage and hay. The concentrate portion included corn grain, candy meal, sugar, canola meal, roasted soybeans, Optigen and a mineral vitamin mix. All market prices were used.
Also included are the feed costs for dry cows, springing heifers, pregnant heifers and growing heifers. The rations reflect what has been fed to these animal groups at the Penn State dairy herd. All market prices were used.
Income over feed cost using standardized rations and production data from the Penn State dairy herd.
Note: August's PSU milk price: $17.31/cwt; feed cost/cow: $6.14; average milk production: 79 lbs.
Feed cost/non-lactating animal/day.