When it comes down to it, much of dairy producers’ time is spent making decisions on which feeds, equipment and supplies to purchase to ensure success on their dairy. These tough decisions – coupled with herd management – often determine how cows will perform.

To learn more about how dairy producers make their decisions, we’ve asked two progressive dairy producers to share their perspectives on how important purchasing decisions are and what factors influence the decisions that will ultimately influence cow performance and future dairy success.

Jimmy Pareo is a dairy producer based in Veguita, New Mexico. Jimmy joined the family dairy in 1998 after graduating from New Mexico State University. Today the dairy milks 4,700 cows on two facilities, and youngstock are raised on the dairy.

Dan Monson is the managing partner of Spring Grove Dairy in Brodhead, Wisconsin. The dairy is home to 1,900 milking cows and is owned in partnership with Cornell and George Kasbergen. Spring Grove Dairy has been at its current location for 11 years.

How important are feed purchasing decisions for the dairy?

PAREO: Purchasing decisions are very important on our dairy, especially when it comes to feed, because feed represents our largest expense. We don’t grow much feed, which means we have to purchase almost all of the ingredients that make up our diets. That makes each decision particularly important because it has a direct influence on our profit margins.

MONSON: The purchasing decisions we make – whether it be supplies, technology or nutrition – lay the groundwork for our dairy operation. These purchasing decisions will dictate herd performance and, ultimately, our profitability. In 2009, purchasing decisions were especially important in an effort to manage risk with low milk prices and volatile feed costs. We manage our input costs through forward contracting in order to hedge as much as we possibly can.

Who or what do you consult to make purchasing decisions?

PAREO: We regularly consult three groups of people and one resource for our information:
• Nutritionist. Our nutritionist works with a lot of dairies, so we feel that he has good insight into prices and what other producers are seeing in our region. Our nutritionist visits the farm monthly and calculates our current and projected cost of production, which assists us in making purchasing decisions.
• Commodity brokers. We have a good relationship with our commodity brokers, who are key sources for pricing information.
• Colleagues. We get a lot of information from other dairy producers and farmers, both locally and around the country. These producers know their regional prices, which allows for comparison between available products and feeds.
• Market and crop reports. Following these reports allows us to track current trends and how they will influence our purchasing decisions.

MONSON: I rely on a team of six individuals – our veterinarian, nutritionist, artificial insemination representative, pharmaceutical representative, milk equipment expert and feed ingredient and commodity buyer. These six individuals are indirect partners of our business and, while they don’t work solely for Spring Grove Dairy, I rely on them to provide information that will bring value to our business.

Outside of this group of six individuals, there is a second layer of consultants who are important to the success of our dairy. These individuals are key representatives from companies that provide products and services, and they offer good information to me before I’m even looking for it. While I may not consult them on a daily basis, their input on new products and services is important for the success of our dairy.

Has the economy influenced your nutrition program and feed purchasing decisions?

PAREO: One of the major changes we’ve made is the use of more corn byproducts in our diets rather than corn itself. Our nutritionist has been able to formulate diets to make up the nutrient difference, so we can keep costs reasonable and supply cows with the nutrition necessary to thrive. We also focus more closely on how feed is transported to the dairy. While we have used both rail and trucks to ship feeds, we now make sure the most cost-effective transportation method is being used. Lastly, in an effort to minimize risk in volatile markets, we’re purchasing feed in smaller quantities. In the past we’ve purchased all of a certain feed at once, but we hope this new method will help us minimize risk in our feed inventory investments.

MONSON: We have had to pull back on our nutrition program over the past few months simply from a cost standpoint. In 2009 we purchased 100 percent of the feeds in our rations, so we are especially focused on the costs associated with these diets. While we have had to cut back slightly, we know that what is good for our cows is good for our business, regardless of the cost. We firmly believe that healthy cows with good production are still more profitable than unhealthy cows with poor production.

Beyond price, what guides your purchasing decisions?

PAREO: Feed ingredient quality and supply play important roles in our decision-making process. We have worked hard to build good relationships with our suppliers because having consistent, high-quality feed is critical. Price is not the only factor we look at when choosing a company to be a supplier. In many cases the companies we work with are not the cheapest, but provide superior service.

MONSON: Rather than price being the deciding factor, we also look at the people who sell the product and the additional services companies can bring to the table. This includes a knowledgeable technical services team; high-quality, researched products; or additional return when a product or service is used. In many cases we know the products that cost more will provide additional benefits to our dairy, demonstrating why these factors are just as important as price.

How far in advance do you plan for your dairy? How does this influence your purchasing decisions?

PAREO: We plan to be in the dairy business for a long time, so it’s important for us to keep a strong relationship with our suppliers and commodity brokers. As we plan for the future we know forage supplies can be challenging, so it’s one of our main focuses each year. We live by a give-and-take philosophy, knowing that we may have to pay more to get high-quality feeds over the long term, but it’s especially important to our dairy’s future.

MONSON: We plan at least 12 months in advance and, in some cases, even further out. Some of our feed contracts are on an annual basis, so we are continually focusing on what the future for our dairy looks like. We routinely ask ourselves, “How will this feed purchase impact our dairy’s profitability?” Because costs can be volatile – whether it be fuel, feed or supplies – we must monitor costs when planning our dairy’s future.

What advice do you have for others regarding feed purchasing decisions?

PAREO: Make sure you work with a great nutritionist who helps to make these important feed purchasing decisions. Building a strong relationship with reputable suppliers is also important to ensure high-quality feeds are delivered to the farm in a timely manner.

MONSON: I think it’s especially important to build a network of indirect partners with expertise in different areas of the dairy industry. These individuals have a direct influence on the decisions you make and serve as a resource for your dairy. I also think it’s important to include people who might be important for your company in your decision-making process – whether it’s a feed ingredient company or a supply salesman – as they can provide high-quality, researched product information that is relevant to your dairy. It’s especially important to be able to measure the results you see when new products or services are implemented. As you make decisions, it is absolutely critical that you understand how they impact herd performance and profitability. PD