David Hunsberger, Central Region Coordinator
Habakkuk 3:17-18 Still I will praise Him…
This verse may not translate to your situation directly – not many of us have large vineyards and olive orchards, but with all our commodity values down across the spectrum, I think it’s good to step back and gain some perspective. In this short article, I will focus on cattle and dairy in particular, and one can use these concepts to extrapolate and compare to other production models.
There are two roads to choose from to keep one’s head above water: a) lower costs to produce and keep the level of production stable or higher, or b) increase production and monitor costs to be certain they are not above the value of the increased production. These are diametrically opposing practices, yet both share the common goal of reducing the overhead costs of the business to achieve a lower breakeven cost.
Some things that can be noted are universal, so even after you have made your choice on philosophy, here are a few points you can apply across the board (later I will go into some specifics). A bedrock principle to launch from is soil health and fertility.
- Test the soils of the production unit at least every third year. Stay with the same lab and the same season of the year for consistency and to reduce sampling and testing errors. Every operation type, from organic, to conventional, to low-input grazing, to high-input confinement systems, all need this basic information. Test, then apply the appropriate amendments that fit the production system and are needed. Develop a hierarchy of demand vs. cost to allocate limited capital where it will do the most good. Practice active cover cropping on every acre where it is feasible – the long term soil health benefits are critical. Especially in systems that actively till the soil, the cover crop can help with organic matter and tilth improvements.
- High quality forages make money across the board. Highly digestible, high nutrient density forages are the backbone of efficient ruminant-based farms. Make sure you are planting the best genetics and practices for all forages except for conservation use.
- Test those forages! If you don’t test, guessing is the game. Unless we measure, we cannot manage. With margins tight to nonexistent, over- or under-feeding a nutrient is an error we cannot abide.
- Look at excess capacity if any. As a rule of thumb, if you have not used an asset in three years, the argument can be made that it is unnecessary, and the dollars tied up in it could be allocated more beneficially elsewhere.
A key point: do not cut cost indiscriminately! Use care in advising cost cutting, as it can often result in the undesirable effect of reducing output by a larger margin than the reduction of cost. All the while, be on the lookout for so-called “miracle products” that only benefit the seller.
Perhaps diversification is in order? Poultry or complementary produce or ornamental production, agro-tourism, or a secondary livestock enterprise could be initiated. Watch out for unplanned-for time and labor requirements that will detract from the main enterprise. I know of several successful dairies that take in some extra machinery from outside the farm and do a home shop rebuild/refurbish during the cold winter months to leverage labor hours that were dedicated to cropping during the growing season.
On high output dairies, here are some areas to look at. Energy is the largest expense, followed by protein. See if it makes sense to book some pricing on these high cost items. It will be uncomfortable to have a $14/cwt class lll milk price and have a South American production scare rocket up the corn soy complex!
|SCC2 Code||Milk loss per day for each increase in SCC2||Range of SCC2 per milliliter of milk (x 1000)|
|7||1.5||1,131 – 2,261|
|8||1.5||2,262 – 4,523|
Somatic cell count and milk production are inversely related (see table). For each rise in linear SCC score above a 3, you lose 1.5 pounds of milk/cow/day, and it is cumulative. A cow with a linear score of 5 (283,000-565,000 count) has a potential loss of production of 6 lbs per cow per day. Old Bessy with a linear score of 9 and 100 lbs of milk is really a potential cull cow, especially in smaller herd sizes, as she can affect the bulk tank enough to mitigate a milk quality premium. This brings up 2 more areas, cull rate and milk quality,
First cull rate: do not focus solely on number but on its effect. Assess the current situation: are we keeping lower production cows too long or are we losing them too quickly to get a return on our cattle investment? This will take some time to evaluate. Visit with the herd veterinarian and get their perspective. This will lead into a discussion of heifer to cow ratio – how many heifers do I need to raise to maintain or perhaps grow herd size? Heifer replacement costs can run from $2-3/day. Too many young cattle can be a drain on a dairy’s cash flow.
Milk quality premiums can be a welcome source of increased revenue. If the market your client ships to offers quality bonus they want to capture as much of it as possible. As milk price decreases the importance of premium dollars increases. For example, at an $18/cwt of milk a $1.00 premium is 5.5% of the total milk revenue. At $16/cwt milk price it constitutes 6.25% of milk revenue.
I will close with an opinion: what is best for the individual dairy is bad for the industry as a whole. Each dairy wants to ship more milk to keep revenue in a down price market; this is however not going to help the oversupply issue. Never the less here is the impact on an individual shipper. I am using a 100 cow base farm as an example. 100 cows @ 70 lbs of milk = 7000 lbs per day. At $18/cwt that is $1260. If milk price drops to $16/cwt, that 7000 lbs is only worth $1120 in daily income – a loss of $140 dollars. To keep revenue neutral those 100 cows need to make up 875 lb/day (go from 70 to 78.75 lb/cow/day) or if 70 lbs is maintained, we need an additional 12.5 cows so of course we would milk 15 moreJ. This is not static, as costs also increase – but you see how this plays out, more milk some way somehow!
As seed dealers, we find we have to be ready to have some of these hard discussions when or if they occur with our customers. They need to be able to generate enough income to stay in business and prosper.