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Profitability of robotic milking systems vary greatly from farm to farm

Kelli Boylen for Progressive Dairyman Published on 03 May 2018
Robitoc milking system

Bankers and salespeople tend to look at the cash flow of milking robotics, but Larry Tranel, Iowa State University Extension dairy specialist, said profitability and quality of life may be the more important factors to consider.

Larry Tranel

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There are many elements that need to be analyzed when considering robotics, which can make it a challenge to determine whether robotics are a good fit for your family and farm.

“It is important on all farms to figure what numbers, assumptions and concepts are realistic and helpful to use in analyzing the financial aspects of this decision in the context of personal and business needs, priorities and goals,” Tranel said during a presentation about the economics of milking robots at the 2017 World Dairy Expo.

Labor costs typically go down 50 to 75 percent with robotics, production goes up, heat detection improves, cull rate goes down and, often, somatic cell counts go down.

In addition to the initial investment of an automated milking system, the costs of repairs are higher with robotics, utility costs often go up, insurance goes up and teat dip costs increase.

Feed costs on some farms goes up, and on others it goes down. And, he adds, all those things can vary greatly farm to farm.

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“If you are just looking at profitability, robots can usually balance out pretty well, and on many farms it breaks even,” Tranel said, but he has seen cash flow and profit variability on individual farms up to $50,000 in either direction. Also, for many producers, the increased quality of life is hard to put a number on.

But of course the number highly depends on milk prices to determine both cash flow and profitability. Tranel said if even one variable changes, such as projected production or milk prices, it could significantly change the outcome.

Tranel said the number one reason families choose automated milking is to reduce labor and increase quality of life. It’s hard to put a price on not missing your child’s ball game or concert or spending a day with your family away from the farm. “Decreased labor and increased quality of life often override the high investment cost of an automated milking system,” he said.

He urged producers to think of the labor costs from several different angles. When considering robotics, Tranel said to think of how much you will save in labor over the next 13 to 17 years but consider the fact you will need to pay for all that saved labor cost over the next seven years when paying the loans back to the bank in order for labor costs to pay for the robotics investment.

He added if you will be farming for at least another 13 to 17 years, that increases the propensity to put in robotics, but if you are only planning on farming about seven years, then it might not make sense.

Calculating labor costs can also be tricky if you and your family are doing the milking. One full-time employee typically has a goal of 1.2 million pounds of milk produced annually, and some say since robots harvest 1.7 million pounds, they are worth more than one full-time employee.

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This is not necessarily true since the employee is typically also managing the herd, including feeding, herd health, manure handling, tending younger stock, etc. “Thus, be careful how you compare the economic competitiveness of the robotic milking systems,” he said.

Low-cost parlors can sometimes make more financial sense than robotics. Tranel compared the cost per hundredweight for milking 120 cows in different systems. The cost (including annual capital and labor costs) for an automated milking system is $2.47. This compares to a cost of 88 cents in a high-efficiency parlor, $1.92 for a low-efficiency parlor or $2.03 for a tiestall or stanchion barn. But the costs for each of these systems can vary greatly as well, he said.

If an efficient parlor is milking at least 75 cows per hour per person, it may make more sense for that farm to stay away from robotics. But even in an efficient parlor, labor can be expensive.

“It all comes down to how much you are willing to spend to milk your cows,” Tranel said.

Robotics may have a higher-than-expected maintenance cost after the warranty runs out. Parts of most concern are hydraulic arms and lasers after warranty because of their high replacement costs. Tranel said producers who learn to make their own repairs could save in the long run.

Milk production often goes up with the installation of robotics, which is the case with those currently milking 2X who switch to robotics and usually see a 3 to 5 percent increase or more. Increases in production higher than 5 percent can usually be attributed to improved housing, which often is done in conjunction with the switch to robotics. However, Tranel said individual producers have had production go up 10 percent or more solely with the addition of the robots. In contrast, Tranel said producers currently milking 3X may experience a decrease in milk production.

Automated milking systems also collect individual cow milk production, milk conductivity, cow activity and rumination data. Depending on how one analyzes and uses this information, the economic benefit may or may not be as good of a deal for individual producers, Tranel said.

“In summary, automated milking system variables need careful discernment in order to confidently make decisions as to what financial and cash flow impact automated milking systems will have on a dairy farm,” Tranel said. “As with any system, it takes excellent management for success. With automated milking systems, particular attention must be paid to nutrition management and cow health.”  end mark

Kelli Boylen is a freelance writer based in Waterville, Iowa.

PHOTO 1: If an efficient parlor is milking at least 75 cows per hour per person, it may make more sense for that farm to stay away from robotics. But even in an efficient parlor, labor can be expensive. photo by Ray Merritt.  

PHOTO 2: Larry Tranel. photo provided by Larry Tranel

Economics of Robotic Milking spreadsheet

To calculate the potential economics of robotics for your farm, visit Iowa State University Milking Systems and click on “Economics of Robotic Milking Systems (Working Excel Spreadsheet) by Kristen Schulte and Larry Tranel” or download the spreadsheet at Iowa State Extension - Exonomics of Robotic Milking Systems

Keep in mind you need to customize the spreadsheet with your variable inputs.

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