September 5, 2017 at 3:32 p.m.

The big six

By Jim Bennett- | Comments: 0 | Leave a comment

For years, scores of financial and management experts have tried to identify factors that may help dairy farms be more profitable. Recently, Zoetis and AgStar published findings of a multiyear study, "Identifying Drivers of Profitability on Commercial Dairies," (Zoetis Technical Bulletin GDR-00171, 2016) showing strong correlation between net farm income expressed as dollars per hundredweight (cwt) of energy corrected milk, and six (out of 90 examined) management factors.
Ranked by strongest correlation, they are: net herd replacement cost (NHRC), pregnancy risk (PR), heifer survival rate, energy corrected milk (ECM) shipped per cow per day, somatic cell count (SCC), and death loss. Caution must be used when interpreting correlations, however, because correlation and causation are different things.
There are six possible relationships between two correlated events, defined as event A and event B. They are: direct correlation meaning A causes B; reverse meaning B causes A; common cause meaning A and B are caused by a common event; cyclical where A causes B and B causes A; indirect when A causes C, C causes B, and no correlation is when there is no connection between A and B. We can examine these profitability drivers with this in mind.
Net herd replacement cost is defined as the difference between total replacement cow value and book value of dead and sold cows per cwt ECM. So replacing fewer cows, having lower heifer raising costs per heifer, having higher cull and dead values, and selling more milk, all result in lower NHRC. This one factor may be the lowest hanging profitability fruit in the dairy industry since average age to first calving is around 26 or 27 months, yet many farms average 22 months with 85 or 90 percent of animals calving before two years old. Also, dairy herds seem to be getting younger, due to an excess of replacements, and we know younger cows produce less milk. Looking farther into the data, there are correlations between NHRC and somatic cell count, and ECM and culling rate. So while there could be a direct correlation between NHRC and profit, it may be true that there are some indirect correlations as well.
Pregnancy risk is defined as the percent of eligible animals becoming pregnant in a 21-day period. Highly correlated with profit, it was also correlated with ECM and SCC. Most likely, PR causes increased milk production due to shorter lactations, and thus an indirect correlation with profit. However higher PR also may result in lower breeding and veterinary costs, more selective culling and other factors, so a direct correlation is possible, too.
Heifer survival rate is the inverse of heifer death rate. No strong correlations to any of the factors, except net farm income per cwt, were identified. There was not a large difference between the top one third and lowest one third of profit farms in the study (95 percent versus 93 percent) so an indirect correlation is likely.
Not surprisingly, ECM was highly correlated with profit. However, herd size or total milk sold was not. Remember that profit in this study was defined as profit per hundredweight, not total profit per farm. Nevertheless, it is interesting that economy of scale did not affect profit per cwt. ECM was highly correlated with SCC, death loss, feed cost per cwt ECM and average days open. All of these correlations were negative, meaning higher production was associated with lower SCC, and higher production was associated with lower feed cost per cwt, for example. It seems likely there is a direct correlation between ECM and profitability.
Somatic cell count was highly correlated with profitability, although the difference between the SCC in the highest one third of profit herds and the lowest one third of profit farms was only 47,000 SCC. The SCC was also highly correlated with death loss, days open, PR and ECM per cow per day. There is probably not a direct correlation between SCC and profit because the small difference between top and bottom herds would not result in a significantly higher milk price. However, higher SCC herds produced less milk, so most likely there is an indirect correlation between SCC and profit.
Death loss in the highest one third of profit farms was 6.6 percent. Again, there was a small difference between death loss in the top third and lower third (6.6 percent versus 7.9 percent), so the correlation is probably not direct. Death loss was correlated with SCC, NHRC and ECM per cow per day.
So out of 90 management factors, including labor cost, herd size, feed cost, depreciation and breeding cost, only six were identified as highly correlated with profit per cwt. All six of these are strongly related to animal husbandry. When each of the six factors was examined for correlations to other factors out of the total 90 on the list, they were most often correlated to one or more of the same top six factors, or to animal husbandry. With perhaps ECM being the exception, correlations are mostly indirect, meaning improving in one area will not necessarily increase profit on any one farm. They are all inter-related and all highly correlated with profit, so perhaps the best summary is this: Healthy cows make more money. Or perhaps this: Trying to make money with unhealthy and unproductive cows is just fiddling around the edges. Cows come first.
Jim Bennett is a dairy veterinarian at Northern Valley Dairy Production Medicine Center in Plainview, Minn. He and his wife, Pam, have four children. Jim can be reached at [email protected] with comments or questions.
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