Nine Steps to Better Margins in 2019

December 28, 2018 07:00 AM
 
Managing basic fundamentals can lead to better profits.

Looking ahead to 2019, there aren’t any indications the dairy economy will be markedly better than 2018. That means margins will be tight once again. However, there are ways to max-imize revenue and minimize expenses without impacting production, resulting in better margins and stable cash flow. Here are a few steps toward making margins all they can be.

1. KNOW YOUR IOFC AND COP

The first, and probably most important, step is knowing your income over feed cost (IOFC) and cost of production (COP). “Producers can go a long way toward managing margins if they understand their cost of production,” says Steve Bodart, senior dairy consultant with Compeer Financial. “And they need to know their income over feed costs so they can protect the feed side and revenue side of the margin equation."

2. RAISE JUST ENOUGH HEIFERS

Raising a heifer from birth to first calf can be expensive. Many producers have opted to reduce the number of heifers they raise to cut back on some of these expenses. The keys are to know how many heifers you actually need for replacements, and which heifers will make the best future cows. Genomics can help identify the heifers you need to keep.The University of Wisconsin Extension has resources to help you determine what it’s costing to raise heifers. 

3. CULL THE RIGHT COWS

If you are culling cows involuntarily in early lactation, re-examine your transition and fresh cow programs. The ideal cull cow should be older, with good condition and open, producing below your breakeven production level. “Producers should minimize the number of cows that leave the herd, especially in early lactation,” Bodart says. A dairy in Florida uses a dollar index to determine which cows should be culled.Find out more about that system at bit.ly/cullcowdecisions

4. MAXIMIZE MILK FAT

Component prices are reversed, with milk fat carrying much higher value than protein. “About 60% of the value of milk is on fat rather than protein,” Bodart says. Work with your nutrition consultant to make sure your feeding program is set up to maximize components.

5. ANALYZE NEED FOR FEED ADDITIVES

There are hundreds of feed additives available to dairy producers, each one guaranteed to increase production 1 lb. per cow or more. While some additives are certainly necessary, others could probably stay in the bag. Work with your nutrition consultant to analyze which additives you could do without and not hurt production or animal health.

6. GROUP LACTATING COWS

“Target feed technologies that are higher investment to cows that are going to offer a better return,” says Joel Pankowski, manager of field technical services with Arm & Hammer Animal Nutrition. “Cow grouping strategies, especially during and shortly after the transition period, are a way to save costs by focusing resources on cows during the time period they will benefit most.”

7. OPTIMIZE MILK QUALITY

Even if quality premiums in your milk check have been removed or reduced, it still pays to push down somatic cell counts (SCC). One study shows for every 100,000 cells/mL increase in bulk tank SCC, milk yield drops 5.5 lb. per cow. 

8. KNOW YOUR FORAGE QUALITY

Now that you have your corn silage, haylage and other forages harvested, it’s important to know what you have in your forage inventory. If you didn’t test those forages before they went into storage, make sure you get an analysis before they go in the feed bunk. With forages making up more than half the dairy ration, it’s important to make sure you can accurately balance the ration to optimize production.

9. USE RISK MANAGEMENT

“Make sure you put a floor on your milk production based on where your breakeven lies,” explains Jim Moriarity, dairy director with Compeer Financial.There are a number of risk management tools available for dairy producers to consider, including the new Dairy Revenue Protection program (Dairy-RP).

While there are several more actions producers can take to manage margins, the key is to focus on those practices that minimize costs without forfeiting production. Doing so will create a better opportunity to increase profitability without sacrificing cash flow.

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