Tom AndersonFarm Business Mgmt. Instructor
Tom Anderson
Farm Business Mgmt. Instructor
Elkader, Iowa ­- "If there is anything that is selling these things it is the quality of life for the farm family, and the cows. In addition, the technology simply works," said Tom Anderson, farm business management instructor at Riverland Community College about milking robotics.
Anderson was the featured speaker at a free seminar focusing on "The Financial and Production Benefits of Robotic Milking" held March 17 in Elkader, Iowa. More than 60 dairy producers, bankers, nutritionists and others attended.
Although Anderson said robotics can offer great rewards to operations and the families behind them, they are not for everyone.
"If you don't want to be with your cows, don't get robotics," he said, stating that the robot will not feed the cows, breed the cows, haul manure or do herd health.
"Robotic milking will not make a poor dairyman a good one," he said. "This is not meant for your less-than-average producer. If your DHIA sheets sit in the envelope every month, I don't think this technology will help your operation."
Anderson reviewed the "hidden costs" in dairying such as having pregnancy rates below 18 percent, turnover rates more than 30 percent, a high somatic cell count, and a calf death loss (dead on arrival to three months of age) rate of more than 6.5 percent.
Robotic milkers will typically display "out of parameter" readings for each cow to help with herd health, monitor rumination frequency, and usually the system will monitor activity as well, thus offering tools to significantly reduce many of the hidden costs which exist on many farms.
Anderson offered benchmarks for dairies to reach maximum profitability. The first he reviewed is to have a labor cost of $2.60 to $2.75 per cwt. of milk, a figure which should include all family living and other costs such as worker's compensation.
Anderson compared the cost of human labor versus paying for a robotic milker. For a $180,000 robotic unit and equipment to the tank, at 6.5 percent interest for seven years, comes to a payment of $32,819 a year. If the robotic unit is milking 4,700 pounds a day (60 cows), equaling 1,715,500 pounds annually, that calculates to a labor cost of about $1.94 per hundredweight of milk. Or, 60 cows producing 5,500 pounds of milk a day, calculates to $1.64 a cwt. for the milking to be done.
On a conventional dairy, one full time equivalent person (FTE) should produce 1,000,000 to 1,200,000 pounds of milk annually, so the robot is replacing more than one FTE employee. The first robot is the hardest to cash flow as often little labor is replaced so the increased debt load must come from other sources such as increased milk, less turnover and breeding stock being available for sale or herd expansion.
The second benchmark is to have a debt load of less than $20 per cwt. on a conventional dairy. To calculate this, producers should take their total debt (everything the cows are expected to "pay" for) and divide by their milk cwt. The typical range is $18 to $22, but he notes "The further below $20 you are the better off you will be."
Anderson calculates that when a producer adds the robot debt and replaces part of the labor that would have been needed if the robot wasn't there, the robot debt load benchmark needs to be less than $32 per cwt.
The third benchmark is to have a debt payment of less than $2.60 per cwt., including principal, interest and any leasing payments. This is calculated by dividing the debt payment by the cwt. of milk sold. If the debt payment and labor is combined, a conventional farm benchmark may be $5.38 per cwt., and the robot benchmark $5.50. Anderson advised farmers not to be mislead by this number though, since the robotic systems offer so much technology that can be used to reduce the hidden costs found on many farms.
Anderson's fourth benchmark is to calculate the cows to FTE ratio. He calculates one FTE at 2,400 hours a year. On a conventional farm one FTE can manage 47 cows. On a farm with robotics, one FTE can manage 110 cows (a smaller herd with crop responsibilities). On a larger farm where the FTE has no crop responsibilities, one FTE working with robotics can manage 150 to 200 cows.
Benchmark five is to have a debt to asset ratio of less than 50 percent. Benchmark six is to compare working capital to gross revenue, with a goal of 10 to 20 percent revenue.
Anderson noted some trends he is seeing with well managed robotic herds, including:
• Increased production, usually the equivalent of going from two milkings to three milkings a day, usually credited to less time away from feed and water and increased milking frequency;
• Equal or improved somatic cell counts;
• Herd health improvements;
• Increased pregnancy rates;
• Lower turnover rates resulting in an increase in cow inventory; and improved hoof health.
"Herd health improvement [when using robotics] can be enormous," Anderson said.
Anderson said that when approached for funding, lenders are typically looking for a realistic cash flow, how the special needs cows will be handled, willingness to give real estate as collateral, and their concern about the volatility of the milk market addressed. A solid business plan with a mission statement and goals along with a solid cash flow projection is a breath of fresh air to the lending world.
He said that the addition of sand-bedded freestalls and robotics can make a big difference to the bottom line, when managed correctly. "The cows are more comfortable and the tools are in place to increase cow longevity with good management skills."
He added, "They simply work. Do I believe in them? You bet I do."
"Even PETA has to look at this and say 'It works,'" he said, noting how the cow can choose when it is milked and the fact the cows are milked several times a day is more like nature.