Profit in the Details Rethinkin inputs - again

February 23, 2010 09:42 AM
Dan Little

After months of depressed milk prices and high feed costs, most dairies have cut costs beyond what they ever thought was possible.

Going forward, however, it may be time to re-evaluate some of these changes, or even consider adding some components back to the inputs to improve efficiency.

While income over feed cost or gross margin is the primary driver of profit, it may be helpful to review the inputs and efficiency of the top three expenses for most dairies. The table illustrates the top 10 expense categories, with some estimates of the current monthly expenses for a 500-cow dairy in the Midwest.

The far right column represents a calculation of the percent of expense that would be associated with a $5,000 ($10/cow/month) decrease in monthly expenses. For example, in the case of feed it would take a 6% decrease in expense to equate to the $5,000 difference, while it would take a 92% decrease in repairs and maintenance to achieve the same savings.

Here are some things for you to consider when evaluating the top three expenses on your dairy:

Feed Cost

  • Consider using feed additives or adopting management practices that will impact feed efficiency.
  • Maximize the quality (source and storage) of all ingredients to improve feed efficiency.
  • If possible, rebid base mixes and custom supplements while maintaining a locked formula.

Herd Replacement Cost

  • Monitor the value of the average cow leaving the herd. Remember to include dead cows as a negative value, reflecting their cost of removal.
  • Re-evaluate cow comfort, pen density numbers and feedbunk competition.
  • Evaluate compliance with treatment protocols to ensure timely detection of sick cows and daily follow-up of treatment regimes.
  • Work with your herd veterinarian to evaluate the accuracy of farm diagnosis and response to treatments and to determine which cows should be immediately culled rather than treated due to poor treatment success

Cost of Labor

  • Evaluate parlor routines to ensure compliance with procedures. Improved prep and efficient milking system settings will lead to faster milk-out, resulting in time saved that milkers may be able to use to cover miscellaneous or part-time jobs.
  • Calculate the cost and payback of implementing radio-frequency identification and automation systems to decrease labor and herd management time.

While control of all expenses is important, remember to keep a constant eye on the Big Three when you are working to improve profit margins!


Bonus content:

More on managing margins


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