Principles of Dairy Herd Management Economic Evaluation

Transcription

1 Principles of Dairy Herd Management Economic Evaluation V.E. Cabrera University of Wisconsin-Madison Dairy Science 5 th American-Czech Dairy Cattle Project / 1 st Summer School VFU Brno & ČZU Praha & UW Madison, July 2013, Czech Republic

2 Outline 120 minutes Principles of dairy herd management Economic decision-making Applications Practical usage Understanding basic methodologies Economic models, simulation, optimization Demonstration Existing applications

3 Dairy farm economic management Principles of dairy farm management Making and implementing decisions Maximum (production) profit Decisions at different levels Different planning horizons Cow, farm,region Relies on agricultural economics Subject to multiple restrictions Integrates various disciplines Biology, physiology, economics, crops,...

4 Dairy farm economic management Principles of dairy farm management Farm is unit of concern >13,000 kg/cow Country Aire Farms 1,440 ha 850 heifers t n e m e g a n a 16 employee m Manure s 1,800 cows 40-c r o l r a p l e s u o ow car

5 Dairy farm economic management Principles of dairy farm management Wisconsin 11,000 dairy farms

6 Dairy farm economic management Principles of dairy farm management Dairy cow A complex system Wellbeing Feed Offspring Milk

7 The dairy management cycle Planning and analyzing outcomes Strategic Planning Tactical Operational Implementation Control Analyzing

8 Enterprise budgets Enterprises inside a dairy farm Heifers Cows Crops Biogas Income Income Income Income Expenses Expenses Expenses Expenses Total gross margin Total fixed costs Net profit of a dairy farm

9 Partial budgeting Effective when looking at one component Additional Returns Reduced Costs Returns Foregone Additional Costs

10 Cost-Benefit analysis Useful for possible new investments Costs & Benefits Discount rate (β) PV = FV (1+ β/100) n Decision Criterion NPV C/B IRR Net present value Cost-benefit Internal rate of return

11 Cost-Benefit analysis An example Year Strategy A Strategy B Costs Benefits Costs Benefits Present value β 5% PV NPV C/B IRR 12.4 >200

12 Decision analysis Include uncertainties Mathematical techniques Maximum (production) profit Payoff matrices Maximum (production) profit Process diagrams Maximum (production) profit Decision trees Maximum (production) profit

13 Mathematical techniques Specific algorithms Ai=f(Ai, S1 Sj, P1 Pj, Vi1 Vij) Ai=Decision option Ai(action) Sj=State of nature Pj=Probability of occurrence Sj Vij=Value option i for state j Max EMV (Ai) = Max j(pjvij) EMV=Expected monetary value Maximum of weighted average of all probabilities of occurrence and their respective values

14 Mathematical techniques An example Reproductive programs Programs Outcomes Probabilities Values A1 A2 Current Alternative, 0.16, , , 409 EMV (A1)= 0.16 x x EMV (A2)= 0.25 x x Conclusion Alternative program brings 20/cow extra net return Giordano et al. (2011)

15 Payoff matrices Tabular data representation Decision actions Multiple results Probabilistic outcomes Uncertain possibilities State of nature Value of outcome Probability Sj Aij Pj

16 Payoff matrices An example Milk price (/cwt) Pj Corn price (/bu) Conclusion Return to labor = 1,451/cow per year

17 Process diagrams Logical process Open Calving Estrus AI Pregnant Sell Male Gestation Keep Female Gender Parturition

18 Decision trees An example for mastitis Chance Decision node node Diagnosis Treatment Final outcome Cured % Cured Effectiveness f(prevalence) Effectiveness f(pathogens) Economic value Pinzón-Sánchez et al. (2011)

19 Simulation of dairy farm systems Whole or part of the system Essential for informed decision-making Useful to describe interrelated system parts Basis for assessing & assimilating available information Detect need or lack of science-based knowledge Assist management control of dairy farm systems

20 Simulation of dairy farm systems The process System & Goals! Data Analysis! Model Construction! Model Validation! Sensitivity Analysis! Assist Decision!

21 Simulation techniques Dairy farm systems Static Gross margin Dynamic Deterministic Probabilistic Random Simulation Optimization Partial budgeting Cost-benefit Linear programming Dynamic programming Markov-chain Monte-Carlo

22 Linear programming Optimize objective function Principles Function to optimize Limited resources Several ways to use Elements Objective function Constraints Solving algorithm Feasible solution

23 Linear programming An example Problem Maximize IOFSC = Max(Milk Value - Feed Cost) Limited resources = Corn, SBM, RUP, RDP Upper limit /T kg/cow/d % Milk Corn SBM RUP RDP

24 Linear programming An example Milk Value Milk production x Milk price Feed Cost Feed used x Feed prices Milk production f (RUP, RDP)

25 Linear programming An application = IOFSC Cabrera et al. (2009)

26 Dynamic programming Sequential optimization Principles Optimal policy Stage = time State = cow Objective function 4 Least cost = 12 Policy = 2,1 to 3,2 7 2,1 3, ,1 2 4,1 2 2,2 3,2 6 Kalantari and Cabrera (2012) t

27 Markov chains Sequential simulation Principles Stage = time State = cow Transition probabilities Steady state States Parity Days in milk Pregnancy Production levels Disease...

28 Markov chains An example A B C B State of nature. E.g., Diseased cow 0.8 Transition probability

29 Markov chains t A B C An example A B C A B C Total

30 MIM Markov chains An application b PAR dnb MIP Replacement Cow Cow Value Cabrera (2012)

31 Markov chains An application 300 Cow Replacement PAR=3, MIM=5, MIP=1 225 Cow Value = Months in the future Cabrera (2012)

32 Markov chains An application 897 Economic value of a non-pregnant cow in second lactation one month after calving Cabrera (2012)

33 Lactation Economic value of a dairy cow Practical decision-making Cull or not cull Positive cow value indicates cow brings more value than replacement 1,900 1, MIM, 2 MIP Average +20% milk -20% milk -1,

34 Economic value of a dairy cow Practical decision-making Breed or not breed Better chance for higher value cows 1,800 1,340 Average +20% milk -20% milk nd lactation cow Months after calving

35 Economic value of a dairy cow Practical decision-making Treat or not treat More investment allowed in higher value cows Cow value, nd lactation cow Months after calving Open Pregnant 3 MIM Pregnant 5 MIM Pregnant 7 MIM

36 Economic value of a dairy cow Practical decision-making Calculate the value of a pregnancy Difference between 240 1st Lactation 3rd Lactation 2nd Lactation 4th Lactation pregnant and nonpregnant vs Months after calving

37 Economic value of a dairy cow Practical decision-making Calculate the cost of a pregnancy loss Difference between non st Lactation 3rd Lactation 2nd Lactation 4th Lactation pregnant and pregnant vs Months in pregnancy

38 Economic value of a dairy cow Practical decision-making Calculate the cost of a day open Difference between value of non-pregnant cow in 2 successive days vs. +1d E.g., 5.16 (month 2-3) and 4.26 (month 5-6) Cow value, 2 nd lactation cow Months after calving

39 MIM Markov chains Another application: Herd value b PAR dnb MIP Steady State Cabrera (2012)

40 Markov chains Another application: Herd value Herd net return () Aggregation of individual cow s net return Cabrera (2012)

41 Markov chains Herd value calculation 1,969/cow per year Average net return of a cow in the herd according to herd production, reproduction, and economic variables Cabrera (2012)

42 Herd value Practical decision-making Calculate the value of improved reproductive performance Herd value difference of reproductive efficiency Herd value, 2,075 2,019 1,963 1,906 E.g., value of improving 21-d pregnancy rate from 15 to 20% is 50/cow per year 1, d PR, %

43 Herd value Practical decision-making Calculate the value of decreased culling rate Herd value difference of changed culling rate Herd value, 2,030 2,005 1,980 1,955 E.g., value of decreasing culling rate from 40 to 35% is 19/cow per year 1, Culling rate, %

44 Herd value Practical decision-making Calculate the value of increased productivity Herd value difference of changed rolling herd average (cow average production in a year) Herd value, 2,670 2,330 1,990 1,650 E.g., value of improving RHA from 10.9 to 12.3 kg/cow per yr is 295/cow per year 1, RHA (x1,000) kg/cow/yr

45 Dairy feed cost evaluator Benchmarking income over feed cost Income over feed cost Milk value - feed cost (very simple concept) Important to benchmark Against historical data Against peers Dynamic procedure Permanent cycle of data collection, analysis, and decision making Enables informed decisions purchase feeds, price risk management, ration adjustment, etc.

46 Dairy feed cost evaluator How to benchmark IOFC Collect farm data Analyze farm data Compare farm data

47 Dairy feed cost evaluator Data collection scheme Collector 1 Collector 2 Collector 3 Farm 1 Farm 1 Farm 1 Farm 2 Farm 2 Farm 3 Farm 4

48 Dairy feed cost evaluator Data collection scheme

49 Dairy feed cost evaluator Data collection scheme Farm 1 Milk income Feed Cost Milk Milk Feed Feed quantity price quantity price

50 Dairy feed cost evaluator Data collection scheme

51 Dairy feed cost evaluator Data collection scheme

52 Dairy feed cost evaluator Data collection scheme

53 Dairy feed cost evaluator Data summary

54 Dairy feed cost evaluator Data analyses

55 Dairy feed cost evaluator Data analyses

56 Dairy feed cost evaluator Data analyses

57 Dairy feed cost evaluator Case study 9 Wisconsin dairy farms Around 12,000 cows Fond Du Lac Central East part of the State Collector Paul Dyk (former Extension agent)

58 Dairy feed cost evaluator Wisconsin case study Highest= Farm6 = 8.59/cow/day 2 nd Lowest 3.30 Lowest=7.46 Why the big differences?

59 Dairy feed cost evaluator Wisconsin case study: Feed costs Farm6 = 4.36/cow/day 3 rd Lowest Farm1 Farm2 Farm3 Farm4 Farm5 Farm6 Farm7 Farm8 Farm9

60 Dairy feed cost evaluator Wisconsin case study: Feed costs rd Lowest Homegrown Purchased Farm1 Farm2 Farm3 Farm4 Farm5 Farm6 Farm7 Farm8 Farm9

61 Dairy feed cost evaluator Wisconsin case study: Dry matter intake Farm6 = 52.7 lb/cow/d 5 th highest

62 Dairy feed cost evaluator Wisconsin case study: Milk (lb/cow per d) Farm6 = 85 lb/cow/d 3 rd lowest Farm1 Farm2 Farm3 Farm4 Farm5 Farm6 Farm7 Farm8 Farm9

63 Dairy feed cost evaluator Wisconsin case study: Feed efficiency MILK_DMI FCM_DMI ECM_DMI Rank= Farm1 Farm2 Farm3 Farm4 Farm5 Farm6 Farm7 Farm8 Farm9

64 Dairy feed cost evaluator Wisconsin case study: Milk price Farm6 = 15.24/cwt milk Lowest

65 Dairy feed cost evaluator Wisconsin case study: Milk components Rank=4 Milk3Butterfat3(%) Milk3Protein3(%) Rank=1 Farm1 Farm2 Farm3 Farm4 Farm5 Farm6 Farm7 Farm8 Farm9

66 Dairy feed cost evaluator Wisconsin case study: Milk revenue Farm6 = 12.95/cwt milk 2 nd Lowest

67 Dairy feed cost evaluator Farm6 improvement plan Look for better milk price Good milk components, but lowest price received: Opportunity to negotiate Reduce feed costs Homegrown and purchased Forages and concentrates Improve feed efficiency Look for enhanced production at DMI level Maintain production at lower DMI level Check feed quality permanently

68 Thanks