March 1, 2021 at 7:50 p.m.

Is your farm resilient?

Hadrich’s presentation includes a cow’s breakeven point
Joleen Hadrich, U of M Extension economist
Joleen Hadrich, U of M Extension economist

By Krista [email protected] | Comments: 0 | Leave a comment

    Being able to answer the question, “How much money is each cow in a herd making?” is important to know to keep a dairy business running.
    It is also the question asked Feb. 12 during a University of Minnesota Extension and Minnesota Dairy Initiative winter dairy series webinar, “Bessy’s Bottom Line: How much is that cow actually making you?” Joleen Hadrich, University of Minnesota Extension economist, presented the webinar with input from Francis Rynda, a dairy farmer from Le Sueur County near Montgomery, Minnesota.
    “How do we know our cow in our dairy herd is actually making us money,” Hadrich said. “It’s not just what she’s generating that year, but there’s a cost incurred to get her from when she was a baby calf to her first calving and making sure we’re including that cost as well. That’s the main goal of this conversation.”
    Rynda included his opinions based on his records and what has worked on his 47-cow herd.
    Using records from FINBIN, a farm financial and production benchmark database, Hadrich presented the cost of production, which includes labor and management, for dairy farms based on size in 2019. Here is the average price per hundredweight in order to breakeven: $20.28 for farms with 1 to 50 cows; $17.97 for farms with 51 to 100 cows; $17.94 for farms with 101 to 200 cows; $17.61 for farms with 201 to 500 cows; and $17.43 for farms with over 500 cows.
    “When we actually value the operator’s labor and management at true market rates, the herds with 1 to 50 cows on average lost about $386 per cow in 2019 while the other farm sizes report a positive profit,” Hadrich said about the FINBIN data. “The one caveat I like to put in is that this is an average. We can have a number of our 50-cow dairies that are generating positive profit for their family to survive on and in other instances they may not be due to multiple reasons.”
    Rynda is one example of a profitable farm in that category. Based on his numbers, Rynda calculated his 2020 breakeven price at $17.97 per cwt with an average milk price for the year at $19.66 per cwt. That’s a $1.69 per cwt profit for the year.
    “It’s all about knowing where you’re at,” Rynda said. “If my (cost of production) price is lower than what I’m actually receiving, then I have to look at my management practices or my feed costs or everything and see how I can be profitable or if I need to get out.”
    Hadrich asked Rynda if he uses forward contracting.
    “Being a smaller dairy, doing forward contracting doesn’t work (for me) because you have to do it in larger amounts,” he said. “But you have to know where you are with cost of production so you can know where you’re going.”
    Hadrich used a recent University of Minnesota study to show data about what makes a dairy farm resilient or non-resilient. The farms identified as resilient were those in the top 25% of their peers for four out of the seven years of the study based on the net farm income ratio.
    “Keep in mind that non-resilient does not mean they weren’t successful,” Hadrich said. “It just means they did not rank in that top 25% for four or more years.”
    The average farm size of resilient farms was about 100 cows while the average size of non-resilient farms was about 400 cows.
    Based on cows with consecutive lactation data, resilient farm cows gave 71 pounds of milk per cow per day while the cows on non-resilient farms gave 87 pounds of milk per cow per day. Daily energy corrected milk came to 76 pounds per cow on resilient farms and 93 pounds per cow on non-resilient farms.
    Daily feed cost per cow on resilient farms came to $5.44 while it was $6.44 on non-resilient farms. The age of a cow at first calving was 25.98 months for resilient farms and 24.23 for non-resilient farms. Estimated cost for raising a heifer came to $2,236 for resilient farms and $2,116 for non-resilient farms.
    On Rynda’s farm, he said raising a dairy heifer costs about $1,800.
    “That’s cost savings in terms of labor and what you’re feeding them,” Hadrich said. “This is a great example that the numbers we give are an estimate. It’s really important to know what the cost is to raise that cow from birth to first calving.”
    Emphasizing heifer raising cost is important, Hadrich said. That animal will need to recoup both her yearly expenses as a cow and close to $2,000 in expenses she incurred before she could produce milk.
    “So, if you only have that cow in your herd for two years, that means she has to be generating another $1,000 per year in revenue on top of what she’s doing to cover her costs that year so you’re not at a loss of raising that cow,” Hadrich said.
    The study also explained when cows reached the breakeven point in their lifetime. Across all farms, only 14% of cows hit breakeven in the first lactation. In the second lactation, resilient farms had 30% of their cows breakeven while non-resilient farms had over 21% hit that point. In lactation three, 14% of cows on resilient farms reached breakeven while 12% cows broke even on non-resilient farms.
    “A much larger percent of the cows hit the breakeven in their second lactation on resilient farms,” Hadrich said. “And the unique thing we found out is the resilient herds tended to keep cows in their herd longer. What this mean is that once this cow hit her breakeven in lactation two, she maybe stayed in the herd until her sixth lactation.”
    This gives those cows more time to generate more income for a farm. Non-resilient farms kept cows an average of two lactations, and overall 40%-60% of all cows in the sample never hit their lifetime breakeven.
    “Even when we factored in the cull price, she didn’t recover the cost of keeping her in the herd over that time period,” Hadrich said.
    Out of Rynda’s 47 cows he had on the herd’s most recent DHIA test, 23 cows were on their first or second lactation; 11 of them were on their third lactation, four cows were in their fourth lactation, three were in their fifth lactation and one was in her sixth lactation.
    “I could assume 50% of your herd should be contributing to your equity generation over time because if you’re like an average herd, they should have hit their breakeven by their third lactation,” Hadrich said.
    When it comes to culling, Rynda looks at several factors, especially milk quality and the ability to breed back quickly.
    “I’m not afraid to sell the animals … if they’re causing issues or costing me money,” Rynda said. “If they’re high somatic, my premiums at the creamery go down. If I’m treating them, that’s costing money. If they’re in the barn milking, but not going to have a calf, that’s longer days in milk so that’s costing me money.”
    Hadrich said Rynda’s farm is a great example of how the decision to keep a cow in a herd or not is not based on one contribution.
    “It’s always a multitude of things and to have the assumption that every cow in your herd is going to breakeven is an unrealistic expectation,” she said.
    It comes down to each farmer’s goals and how he or she wants to feed his or her herd.
    The resilient farms were lower in milk with a lower feed cost; however, they were getting 5% higher milk price due to premiums from the processor, Hadrich said.
    “Other farms are taking the high yield, high feed cost approach, but they may also be getting a volume premium tied to that,” she said. “So, there are different strategies of how you’re going to manage this moving forward.”


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