Profit in the Details: Fewer Cows, More Profit

October 25, 2010 08:46 AM
 

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Dairy's Carbon Footprint 

While it is widely accepted that facilities need to be full for optimal profitability, how should we define “full”?

Increased financial demands are often met by adding more cows. However, as the table illustrates, the opportunity exists for most producers to improve profitability without increasing cow numbers.

In fact, this example shows that the same monthly gross margin can be produced by 695 cows as by milking 1,000 cows. Not only can 695 cows produce the same gross margin, but they can do so while producing 10% less total milk than the 1,000-cow herd at 65 lb. of milk per day. Due to their increased feed efficiency, these higher-producing cows are not expected to eat significantly more feed than the low producers.

Therefore, the expected methane production is roughly the same for all three groups of cows in the chart on an individual basis, but the high-producing herd requires 30% fewer cows!

 

In many cases, cow numbers (and the maintenance of cow numbers) are driven by the monthly borrowing base reports required by lenders to monitor loan covenants. On the surface, therefore, decreasing cow numbers to increase production is not an option. This leads to a complex set of interrelated issues as dairies look to improve profitability by optimizing the density of cows on the farm.

As you work your way through this process, you might consider the following questions:

1. Are there opportunities to adopt technologies that are known to improve milk production? Examples range from 3X or 4X milking to photoperiod control and feedbunk management.

2. When you remove cows from a pen, does the pen production decrease or milk per cow increase?

3. When decreasing herd size, are you just removing the poor producers? Or has the reason for lower production been solved for the surviving cows, too?

4. Do you have a detailed, production-based financial projection that illustrates your budgeted versus actual costs and income for your dairy? The accuracy of this projection will be critical in convincing your lender that the dairy can be more successful with fewer cows.

5. What is the average value of a cull cow in your dairy? Are you able to remove cows from the herd that other dairies can use as profitable replacements?

We all know that getting more milk per cow is a more efficient way of increasing gross profit margin than milking more cows. However, increased record keeping and detailed production and financial analysis are required to test management’s assumptions of profitability as compared with the actual profitability of the dairy.

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