Characteristics of Highly Profitable Dairy Farms: Striking the Right Balance.

Transcription

1 Characteristics of Highly Profitable Dairy Farms: Striking the Right Balance. Dairy Roundtable Discussions March & April 2009 Gary Snider, Agricultural Business Consultant. Farm Credit of WNY Mike Hosterman, Agricultural Business Consultant, AgChoice Farm Credit What do top dairy producers do to be profitable? Control the controllable Have a positive attitude It s a business No magic solution 1

2 A Balance of Performance Factors Influences Top Profits Average 2008 Gross price -- $19.29/cwt Top -- $19.34; Bottom -- $19.20 Net Margin/cwt swings in 2008 Top 20 farms -- $4.01 to $ $2.68 Average farms -- ($0.13) to $ $4.35 Bottom 20 farms -- ($2.57) to ($0.17) -- $2.74 Highest margin herds generally had a healthy balance in 5 key areas. Not necessarily the best performance in all areas. 5 Key Contributing Factors to Profitability Volume Efficiency Capacity Internal Growth Industry skills Cost of production Cost Control Let s look at each of these 2

3 What do we mean by Volume Gross revenue Amount of output Top farms have greater output Top farms generate more gross dollars What were the keys to volume Milk Production Top 20 farms shipped 25,140 lbs/cow Bottom 20 farms shipped 23,956 lbs/cow Components Top ,672 lbs protein & butterfat per cow Bottom ,599 lbs Top $4,576 of component $ s/cow Bottom $4,266 of component $ s/cow Premiums can also play a role 3

4 What do we mean by Efficiency Production & Labor efficiency Top farms have greater efficiencies i i Milk/worker Milk sold/freestall Cows/worker Crop acres/worker Labor Exp/cow Ave. Farm debt/cow Tillable acres/cow Purchased feed as a % of milk income Purchased feed & crop exp as a % of milk income Gross Margin Other What were the keys to efficiency Gross margins better on Top 20 $1,388/cow better, or $5.30/cwt better Lower cost of goods sold (variable costs) Feed exp, Livestock exp, & non-milk income better Labor more efficient Milk sold per FTE: 43,562 pounds different Employee labor as % of receipts: 14% vs. 15% Total labor as % of receipts: 17% vs. 19% Tillable acres per cow 2.2 vs

5 What do we mean by Capacity Are we at the maximum numbers for our facility (freestalls, parlor, acreage, labor) Overhead/Cow Overhead as a % of sales Percent Milk Cows overcrowding Equip. Investment/Cow Tillable acres/cow Average Owner Draw/Owner Percent of Parlor Capacity Assets/Cow What were the keys to capacity Lower Overhead costs Top 20 farms shipped more milk per cow & more milk per freestall (More units of output) Parlor at higher capacity They have balance on only 2 crop acres/cow Grew majority of forages & some of their grain Raise majority of their heifers & marketed some of their cattle Freestalls were not as overcrowded Now that s Capacity 5

6 What do we mean by Industry Skills Animal Husbandry (Repro., Replacements, Culling) % internal herd growth Heifers as % of Cows Cull Rate Culls in 1 st 60 Days % Death Rate in Herd Average Age First Calf Heifer % Heifer Calves Born Ave. Days in Milk 1 st Calf Heifer Cull Rate as % of 1 st Calf Fresh Total Heifer Non- Completion Rate Calf DOA Rate 21 Day Pregnancy Rate Calving Interval Births as a % of Ave. Cow No. Others What were the keys to industry skills Internal herd growth Lower calf DOA rates Lower heifer non-completion Reproduction better Higher % heifer calves born Higher number of births as % of average cows Better culls Lower cull rate Higher level voluntary culls (improved sales) 1 st calf heifer cull rate lower (keep heifers in herd longer) 6

7 What do we mean by Cost Control Keeping costs at lower level Balancing costs with capacity & efficiency i Net COP/cwt Net Margin as a % of sales Cost of goods sold Non Milk Income Total Labor exp Purchased feed exp Crop exp Livestock exp Overhead exp Labor exp Interest exp Others What were the keys to cost control Lower costs Feed, Boarding, Custom, Crop, Livestock, Cow replacements Non Milk Income Better culls, some crop sales, Less calves DOA Cost control comes easy with: Good Production Good Efficiency Good Capacity Good Growth 7

8 Summary What do top dairy producers do to be profitable: Control the controllable Have a positive attitude It s a business No magic solution Summary 5 Key Contributing Factors to Profitability: Volume Efficiency Capacity Internal Growth Industry skills Cost of production Cost Control 8

9 Summary We don t have to be the best in all 5 factors. But, we need to balance out being average at part of the business with being better than average in a couple of other areas. Being below average in any one of these 5 critical factors must be corrected. I m out of balance! Thank You Questions 9