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Extension > Agriculture > Dairy Extension > Business tools and budgeting > Be careful of what you cut

Be careful of what you cut

Jim Salfer, Extension Educator-Dairy

May 26, 2012

Milk futures suggest the first half of 2012 will challenge dairy farm profitability… again. Although cow slaughter is up from a year ago, the U.S. dairy herd continues to grow. Milk production per cow throughout the country has been excellent. Class III milk futures for most months in 2012 are between $15 and $16 per cwt. These values are above historic average prices, but because of the dramatic increase in production costs, most breakevens are now between $17 and $20 per cwt. After 2009 many producers are thinking, "Here we go again"; but dairy economists predict that this downturn will not be as severe and will not last as long as in 2009. This trend of boom and bust years are likely to continue as a higher percentage of our dairy products are going for export and input prices become more volatile. Here are some tips that may help in making it through this challenging time:

  1. Optimize cow numbers – Many freestall barns are bursting at the seams. It is important to keep the barn full, but excessive overcrowding may decrease milk per cow. When milk prices are low and feed costs are high, no one can afford to keep unprofitable cows. Based on projected feed costs and milk prices, it takes around 40 pounds of milk to cover feed costs. Now is a good time to take advantage of the high cull cow prices and cull unprofitable cows. If you are short on cows, buy some replacement heifers. The cost to upgrade from a cull cow to a springing heifer is the lowest it has been for several years. Summer is coming and with impending heat stress less crowding may actually increase milk per cow and profit per stall. With the narrow margins you cannot afford to overcrowd and lose any milk per cow. One of the factors that affect cow health and production is lying time. Rick Grant, President of Miner Institute in Chazy, NY, summarized six research trials that examined the effect of overcrowding on lying time. In all instances, lying time began to decrease substantially when the number of cows exceeded the number of stalls by 20%.
  2. Focus on maximizing income over feed cost – Comfortable cows fed high quality feeds will make the most milk. Home raised forages are usually the cheapest source of nutrients on most farms. This summer is a good time to recommit to harvesting the highest quality forages possible. Segregate forages by quality if that is possible. Certain classes of animals such as bred heifers have low nutrient requirements and will perform fine on lower quality forages. If you need to purchase forages, consider purchasing lower cost forages for older heifers. Many forages decrease in quality because they are not stored properly. Store forages to minimize waste and spoilage. Review all feed additives. During periods of narrow margins do they still have good return? Now is the time to examine if they are truly needed. Don't feed in excess of requirements. Feeding nutrients in excess of requirements only increases feed costs and risk of pollution (especially protein and phosphorus).

    Examine production records with your management team to identify areas for improvement. Select areas and strategies that will give the fastest payback if implemented. If you need help looking at your records, call an extension educator.

  3. Reduce costs that do not reduce milk production – Do not reduce any costs that will affect cow performance, longevity or health. These include bedding, high quality feed and vaccinations.
  4. Review asset use – Are there other assets such as pieces of equipment that are not being used anymore and could be sold? Can you get volume discounts (be careful not to tie up too much cash)? Price shop and watch for bargains. Perhaps you can save money by splitting plant-direct loads of feed with a neighbor. Can you delay some purchases due to current inventory, such as semen? Examine "needs" versus "nice to have" items. Buy used or delay capital purchases if at all possible. However, be careful not to let preventative maintenance slip.
  5. Take care of yourself – These are difficult times for everyone in the industry. You are not alone. Many in dairying and in other industries as well are facing very difficult issues. Continue to take some time off and do the things that you enjoy. Maintain your social network and visit with other dairy producers about ideas and options.

The next few months will be challenging. The best is to focus on factors within your control and continue to take good care of your cows; they are your most important production asset. This will position you for profitability when prices recover later in the year.

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