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Key factors to drive dairy profitability

Emily Barge for Progressive Dairy Published on 30 July 2021

When it comes to dairy production measures like milk production per cow, age of first calving and pregnancy rates, these are biological measures we think about every day.

But which of these measures actually improve the financial health of our dairy operation? During the 2021 virtual Pennsylvania Dairy Summit, Mike Lormore, director of cattle technical services at Zoetis, shared findings from a study between Compeer Financial and Zoetis.

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The study looked at key drivers of profitability on dairies based on net farm income and includes data from 2006 to the end of tax year 2018. The majority of the herds in the study were from North Dakota, South Dakota, Michigan, Wisconsin and Ohio. While the data represents 110 farms and an average herd size of 1,165 milking cows, concepts are applicable everywhere, Lormore said.

“We don’t all have the same land and we don’t all experience the same weather. Not everybody has the same personnel or the same access to capital. What this really says to me is that we have to do the best we can given the rules of the game where we play,” he said.

Lormore encouraged dairy producers to focus on the variables they can control and the specific measures that have the highest opportunity for increased profitability. Referencing revealing data from the study, he provided a detailed overview of some of these measures that can drive profitability at the farm level.

Milk per cow a key variable

Throughout the study, Lormore and his team found that milk production per cow is the most important cow performance variable in determining farm profitability. They also discovered several additional variables that drive profitability on the dairy farm:

Pregnancy rates

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The study found a positive correlation between pregnancy rates and energy-corrected milk (ECM) and profitability. According to the study, the best one-third of the herds in any given year analyzed for ECM had a pregnancy rate of 29.8%. The bottom third had a pregnancy rate of 18.9%, with a large net farm income difference of $193,000 per year.

Within the data for the pregnancy rate variable, Lormore also noted lower somatic cell counts.

“When you keep the uterus clean and keep the cell counts down, cows breed back better when they don’t have mastitis infections,” he said. “Anytime we have an inflammatory process in the body, that tends to decrease reproductive performance, so that’s really important to remember.”

Heifer survival rates

Lormore views this variable as not only surviving, but “thriving.” Based on his data, the top one-third of the herds had a 93% to 94% heifer survival rate. The bottom third had a heifer survival rate of about 83%, leading to a difference in profitability of about $1.93 per hectolitre. Lormore encouraged the audience to think of heifer survival rates on a dynamic basis, not just from year to year.

“If I’m 1 percent ahead of my neighbour with heifer survival rates every year for 10 years, that means at the end of 10 years, I’ve had 11 percent more animals go through my herd. I’ve either been able to expand or I’m just more competitive in terms of selection pressure if I’m maintaining herd size,” he explained. “Getting calves started right, growing those animals aggressively and keeping them healthy is really important to the long-term viability of our herds.”

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Death rate

As cow death loss goes up, profitability goes down. Lormore shared that the top one-third of the herds in the study had a 4.2% cow death rate, while the bottom one-third had a death rate of 9.7%. This is a difference of $1.44 per hectolitre and a testament to the importance of animal husbandry skills.

“I really think of death loss as a proxy for husbandry skills within a herd. Herds that are well managed have people who know how to identify cows that are having trouble and get them back on the right foot quickly. They tend to perform better overall,” Lormore said. “It’s not so much a function of death loss, just overall husbandry and how that relates to herd productivity over time.”

Somatic cell counts

As somatic cell counts go up, profitability decreases. The top one-third of the herds had bulk tank somatic cell counts (BTSCC) below 125,000 cells per millilitre, and the bottom third averaged 274,000 cells per millilitre. The financial impact was a difference of $1.82 per hectolitre. Lormore views BTSCC as one of the most important numbers on a dairy. It can shed light on the longevity and productivity of the herd, how many cows they lose, how many cows they turn over and the impact on replacement numbers.

“I think this is the single most important variable in our whole dataset. We need to continue to invest in producing the highest-quality milk we possibly can,” Lormore said. “It’s profitable because everything else we do to produce better-quality milk results in more revenue at the same time.”

The data also revealed that for every 100,000-cell increase in BTSCC, there is an associated decrease in ECM of 2.6 kilograms per cow per day. “Remember, this is every single day for every single cow in the herd,” Lormore added. “Do the math yourself. ...There are huge opportunities. We can continue to improve the quality of milk we produce, improve our revenue position and improve the financial performance of our dairy overall.”

Labour costs

Lormore said labour costs were a newcomer to the list of statistically significant factors. He found that when labour costs on a per-kilogram basis are high, farms are most likely not being very efficient on managing labour or not getting the kind of performance they need to be profitable.

“Herds that have really good labour and people who have good training make their costs on a per-[hectolitre]-basis low,” Lormore explained.

Net herd turnover cost

The study found that net herd turnover cost (NHTC) has a strong negative correlation with net farm income. The top one-third in the study had an average NHTC of $2.56 per hectolitre, while the bottom third averaged $5 per hectolitre.

“It’s not just the cost of replacement animals. It’s really an accounting term that looks at how overall turnover in our herd ultimately impacts replacement costs on a [hectolitre] basis,” Lormore said. “What it says is: Turning cows is very expensive. When we manage for longevity and husbandry, that has a huge impact on profitability. We really want to drive in that direction and reduce turnover costs because we’ve managed risk appropriately.”

Breeding costs

There is a positive association between ECM and breeding costs, which shows that herds with a lot of milk are successfully getting cows bred. Lormore added that when farms are confident in their ability to get cows bred, they buy good genetics.

“These farms start good, they get better, and they continue to build on themselves over time. They create a differentiation compared to other herds that aren’t using top genetics,” he said. “You see better pregnancy rates in higher-producing herds, so don’t ever confuse yourself into thinking that high-producing cows are hard to get bred. That’s just not true.”

Herd health

At first glance, the study showed no strong relationship between herd health and financial performance. However, after breaking the data set into four quadrants, Lormore explained how dairy producers can be competitive in the industry when it comes to herd health. He encouraged producers to work toward one of two areas:

1. High herd health expenses and high net farm income. These farms are spending money on strategic prevention. They might have great calf and heifer vaccination programs, strong dry cow programs and premium antibiotics, which all yield good performance and healthy animals producing a lot of milk.

2. Low herd health expenses and high net farm income. “These people spend money on good animal husbandry and good animal care, but they spend it in different ways,” Lormore said. “They invest money in their people and their facilities. They have good people [who] drive great performance, and their facilities are comfortable, well ventilated and not stressful to cows, so their cows really perform [without a high investment in health-related costs].”

Conclusion

The bottom line is: These key biological indicators can have a significant influence on net farm income, regardless of herd size. Although the research indicated that herd size and efficiencies of scale can impact net farm income, it also showed that maximizing ECM production, lowering somatic cell counts, improving reproductive efficiency, decreasing net herd turnover and optimizing heifer management are also significant contributors. All of these factors depend on excellent animal husbandry skills.  end mark

Emily Barge is a communications and marketing manager with Pennsylvania’s Center for Dairy Excellence.

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