What s Driving Dairy Profitability. Greg Bethard, Ph.D. GPS Dairy Consulting, LLC Blacksburg, VA

Transcription

1 What s Driving Dairy Profitability Greg Bethard, Ph.D. GPS Dairy Consulting, LLC Blacksburg, VA gregbethard@gpsdairy.com

2 Concepts Benchmarking is a bad idea Goal Setting and tracking makes a lot of sense The lowest cost/cwt typically wins Most Dairies have 3 enterprises Replacement, Farming, Milking Cows Economics trumps Biology Margins matter, ratios don t

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5 Norwood MO Dairy Sale Holstein Springer 7-9 Months Bred $2,500 $2,300 Selling Price $2,100 $1,900 $1,700 $1,500 $1,300 $1,100 $900 Jan- 08 Mar- 08 May- 08 Jul- 08 Sep- 08 Nov- 08 Jan- 09 Mar- 09 May- 09 Jul- 09 Sep- 09 Nov- 09 Jan- 10 Date of Sale Mar- 10 May- 10 Jul- 10 Sep- 10 Nov- 10 Jan- 11 Mar- 11 May- 11 Jul- 11 Sep- 11 Nov- 11 Jan- 12 Mar- 12 Supreme Approved

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8 Land, People, Water US China India PopulaBon 300 million 1.3 billion 1.2 billion % of world 4.5% 20% 17% Arable land, ha 179 million 135 million 169 million % of world 12.3% 11.7% 9.3% per capita Water, km 3 /yr 2,071 2,830 1,908 % of world 4.7% 6.5% 4.4% per 100K populalon Note: Water resources from fao.org

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12 How do you prepare for a downturn? Build a cushion: Have enough equity to absorb a $3.00/cwt loss for 12 months? How much equity should a dairy have? Is the dairy budgeting (projecting P&L s)?

13 Top Three Costs of Producing Milk 1. Feed cost/cwt 2. Replacement Cost/cwt 3. Labor cost/cwt Do you know your cost per cwt?? Does your accounting system put expenses in the proper buckets?

14 Problem with Cost/cwt Ignores income Holstein versus Jersey Premiums Is cull cow income part of income? should be part of replacement cost Is milk hauling a cost? Best Single Number? Breakeven milk price, considering basis (relative to Class III)

15 2 Key Drivers of Financial Success.. Cwts Milk Sold Marginal milk sold each day trumps marginal milk per cow Herd Health

16 Winning Formula Ship a lot of milk from facility Outstanding herd health Generate lots of pregnancies (cows and heifers) Strong replacement herd Cull aggressively Maximizing these will minimize the Big 3 costs

17 How Many Pounds Should a Dairy Ship? Pound sold/parlor stalls/24 Example 1 (Double 60, 6050 cows, 75 lbs) 450,000/120/24 = 156

18 How Many Pounds Should a Dairy Ship? Pound sold/parlor stalls/24 Example 1 (Double 60, 6050 cows, 75 lbs) 450,000/120/24 = 156 Example 2 (60 rotary, 4200 cows, 70 lbs) 294,000/60/24 = 204

19 What is the best reproductive measure? What is the industry benchmark?

20 How Many Pregnancies Does a Dairy Need?

21 How Much is Better repro worth? Improving Pregnancy Rate: Improves lactation distribution i.e. more cows in early lactation Bethard and DeVries (2012) Improved repro reduced costs $0.37 to $2.16/cwt High Milk herds benefited the most

22 Good to Great Avg to Good Poor to Avg Poor to Great

23 Replacement Cost: #2 cost of producing milk Only item on financial statement that is at alltime low

24 Replacement Cost Accountants are required to calculate Not unique to dairy industry; common to insurance and other industries Manufacturing Businesses: cost of keeping productive assets needed to produce desired volume of product.

25 Question?? Does a Dairy Herd Depreciate?

26 What does replacement cost really mean to a dairy? The Cost of Maintaining Herd Size and Structure Two methods: 1. GAAP (Generally Accepted Accounting Principles) 2. Cash Method

27 Cash Method Cost of Replacements - Value of Sold Cows Cwts milk sold

28 Cost of Replacements Cost of purchasing springing heifers Major driver when springers are expensive Typically an advantage to home-raised Feed and other rearing costs for heifers Age at First Calving Number of replacements needed

29 Distribution of Heifer Calving Ages 23 month age at first calving

30 Distribution of Heifer Calving Ages 24 month age at first calving

31 By Times Bred from 9/27/10 through 9/27/11 Bred Number 95% CI %Conc #Preg #Open Other Abort Total %Tot SPC ==================== ====== ===== ===== ===== ===== ===== ===== ==== ==== * * * TOTALS non-ai breedings were omitted

32 21 day pregnancy risk Wait Period 395 Date Br Elig Bred Pct Pg Elig Preg Pct Aborts ======== ======= ==== === ======= ==== === ====== 10/19/ /09/ /30/ /21/ /11/ /01/ /22/ /15/ /05/ /26/ /17/ /07/ /28/ /19/ /09/ * /30/ * /20/ ???? Preg Stat 10/11/ ???? Preg Stat Total Wait Period 395

33 Cash Method Cost of Replacements - Value of Sold Cows Cwts milk sold

34 Value of Sold Cows Number cows sold death loss condemned Quality of Cows sold Are you selling $800 fat and open cows, or $200 junk cows?

35 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year Cull rate Death loss $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

36 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year Cull rate Death loss $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

37 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate Death loss $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

38 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

39 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss 5% 10% 5% 5% $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

40 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss 5% 10% 5% 5% $/cull $500 $275 $500 $500 Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

41 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss 5% 10% 5% 5% $/cull $500 $275 $500 $500 Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

42 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss 5% 10% 5% 5% $/cull $500 $275 $500 $500 Culls/yr to sell Replacements, $/head $1200 $1700 $1100 $1200 # replacements Replacement Cost/cwt

43 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss 5% 10% 5% 5% $/cull $500 $275 $500 $500 Culls/yr to sell Replacements, $/head $1200 $1700 $1100 $1200 # replacements Replacement Cost/cwt

44 Replacement Costs Herd A Herd B Herd C Herd D Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 35% 25% 45% Death loss 5% 10% 5% 5% $/cull $500 $275 $500 $500 Culls/yr to sell Replacements, $/head $1200 $1700 $1100 $1200 # replacements Replacement Cost/cwt $1.24 $2.42 $0.94 $1.29

45 High Culling, more milk low cull price 35% 50% Low beef$ Low beef$ Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, ,000 Cull rate 35% 50% Death loss 5% 5% $/cull $500 $500 Culls/yr to sell Replacements, $/head $1200 $1200 # replacements Replacement Cost/cwt $1.24 $1.61

46 High Culling, more milk low cull price 35% 50% 35% 50% Low beef$ Low beef$ High beef$ High beef$ Herd Size Milking Cows Milk lbs/cow/day Cwts/year 217, , , ,000 Cull rate 35% 50% 35% 50% Death loss 5% 5% 5% 5% $/cull $500 $500 $1000 $1000 Culls/yr to sell Replacements, $/head $1200 $1200 $1200 $1200 # replacements Replacement Cost/cwt $1.24 $1.61 $0.55 $0.64

47 When does high cull rate make sense? Low trade-in value Excellent herd health (low deads, high value for cull cows) Internal growth PREGNANCIES exceed hard count by 10% Low DOA Low calf death losses 80+% of calves born survive to calving

48 Startup Dairy Begin with Heifers or buy a Mature Herd?

49 Startup- Heifers Startup- Cows Herd Size Milking Cows Milk lbs/cow/day Cwts/year Cull rate Death and condemned loss $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

50 Startup- Heifers Startup- Cows Herd Size Milking Cows Milk lbs/cow/day Cwts/year 201, ,000 Cull rate Death and condemned loss $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

51 Startup- Heifers Startup- Cows Herd Size Milking Cows Milk lbs/cow/day Cwts/year 201, ,000 Cull rate 20% 40% Death and condemned loss 10% 8% $/cull Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

52 Startup- Heifers Startup- Cows Herd Size Milking Cows Milk lbs/cow/day Cwts/year 201, ,000 Cull rate 20% 40% Death and condemned loss 10% 8% $/cull $200 $400 Culls/yr to sell Replacements, $/head # replacements Replacement Cost/cwt

53 Startup- Heifers Startup- Cows Herd Size Milking Cows Milk lbs/cow/day Cwts/year 201, ,000 Cull rate 20% 40% Death and condemned loss 10% 8% $/cull $200 $400 Culls/yr to sell Replacements, $/head $1700 $1700 # replacements Replacement Cost/cwt

54 Startup- Heifers Startup- Cows Herd Size Milking Cows Milk lbs/cow/day Cwts/year 201, ,000 Cull rate 20% 40% Death and condemned loss 10% 8% $/cull $200 $400 Culls/yr to sell Replacements, $/head $1700 $1700 # replacements Replacement Cost/cwt $1.59 $2.54

55 Conclusions Economics trumps biology Components have huge value Margins matter, ratios don t Manage and monitor the Big 3 costs

56 Questions?