Current Progressive Dairy digital edition
Advertisement

Dairymen to test-drive margin-tracking software

Progressive Dairyman Editor Walt Cooley Published on 06 February 2014

technology test drive banner

Two dairymen who will test-drive new Web-based margin-tracking software for one year as part of Progressive Dairyman’s first-ever peer technology user group say they want to know more precisely their real-time dairy margins.

advertisement

advertisement

Dan Brick of Brickstead Dairy in Greenleaf, Wisconsin, and Jack Pirtle of P7 Dairy in Roswell, New Mexico, began using MarginSmart from Wisconsin-based Dairy Analyzer LLC in January.

For their participation in Progressive Dairyman’s user group, they will both receive a free license to use the Web-based margin-tracking software for one year, about a $10,000 value to each of them. Both Brick and Pirtle have agreed to ongoing interviews about their experience using the software. (For more explanation about the formation of this peer technology group, see the most current editorial.)

Dan Brick

Brickstead Dairy
Greenleaf, Wisconsin

“One thing I like about the program or why I really looked into it is to get more in-tune with my prices, rather than have someone else doing it for me,” Brick says. “I feel I’ll have a little bit more of a pulse on my input costs and milk prices received.”

Brick’s 800-cow dairy currently buys 25 percent of its feed, half of which is forward-contracted through Wisconsin-based commodity broker Stewart-Peterson. He also contracts up to 75 percent of his milk sales. He plans to continue his present forward contracting strategy but also use the program’s text-enabled margin alerts on his smartphone.

advertisement

Brick’s biggest concern at the outset of the trial period is the labor investment the software will require in order to keep it updated. In January, he spent six to seven hours with the software’s developer Mark Linzmeier to input his current data on ration ingredients, their costs and other overhead.

Linzmeier says after this initial time investment a dairy producer should be able to keep the software up-to-date by spending less than an hour a week in the program. That’s more time than Brick presently spends on margin tracking and marketing each week.

“I’m the sole owner of an 800-cow dairy, so I’m wearing several hats,” Brick says of his dairy and 1,000-acre farm. “I do spend time on marketing, but nothing is set in stone.”

Brick says he checks in with his broker over the phone every two to three weeks. Otherwise, he currently only spends time marketing when “things let up” or the market moves to one of his pre-set trigger points.

At the beginning of his free trial, Brick has decided to dedicate a specific two-hour block each week to the task of tracking margins. That day in his week will be Thursdays. He’s scheduled a specific time slot for margin-tracking activity just like other pre-determined weekly occurring dairy activities, such as vet check.

“I like that it’s updating your margins every day. You might know that milk prices went up and feed prices went down. But you’re able to see how much your margins have changed,” Brick says. “Before, I’ve checked what my margin is at the end of the month or before a quarterly financial meeting, but with this you can check it every 10 to 15 minutes.”

advertisement

Brick believes it will take him some time to get confident that he’s factored in all the appropriate costs and that the margin number the software is showing him is a reality.

After putting in his input costs, he was surprised, in a good way, at his first-quarter margins.

“I’m going to be much more knowledgeable off the top of my head about what my true costs are,” Brick says. “I hope to be more in-tune with some of the non-traded commodity prices too.”

Some of Brick’s farm consultants, including his nutritionist and banker, have also seen a demo of the margin-tracking software. His banker was very interested in its capabilities to track a margin and potentially enable protecting the margin. Brick says he has been doing some form of margin protection through hedging for about the last 10 years.

“I’m sure my banker’s concern is that I can make my bank payment every month,” Brick says. “I think this will be a great program to make sure that his numbers for me are correct as well. It will be a bit more detailed.”

The software enables others to access portions of the data that the farm owner designates permission to view. Brick says he might give access to his margin data to his financial adviser. Each of Brick’s rations, and the milk produced from them, have been entered into the software. He may eventually give his feed manager access to the feed inventory portion of the software.

“One of the things that’s nice about MarginSmart is that it’s Web-based. I can do it from my iPad or my computer or on vacation. I can log in from wherever and access the information,” Brick says.

When it comes to new technology, Brick says he wants to be on the cutting edge, but not necessarily “right on the edge.”

“We typically wait a couple of years until the kinks get worked out of something before we plunge into it,” Brick says.

He is always interested to know how much time or money it’s going to cost to operate a new product after he buys it. One of the questions he asks about new technology to determine if it would be worthwhile to his dairy is: If I was given the product, would I still use it?

Since he has been given this new margin-tracking software for free, he’ll be trying to determine if he can carve out enough of his own time to make it worth it for him to pay for it in the future.

Jack Pirtle

P7 Dairy
Roswell, New Mexico

“If we can show this software shows a real number that’s close to what’s being spent on the dairy, then I would like to start using it to sell milk with futures,” Pirtle says.

Pirtle’s 3,000-cow New Mexico dairy currently doesn’t market its milk in advance. He does use a private commodity broker to forward contract some of his non-forage feed, although not usually more than one month in advance.

“Most margin indicators are based only off board contracts for corn, soybeans and milk, but they’re just indicators that tell you when you might need to look into shoring up a margin,” Pirtle says. “But what I think Mark’s software has over what’s out there is a precise profit-per-hundredweight number, not just indicators.”

Pirtle distrusts typical indicators that are based on corn and soybean contracts that indicate when it’s a good time for him to “buy feed and sell milk.” He’s most interested to use the software to track feed costs that may be unrelated to the movements of Chicago Board of Trade contracts, such as cottonseed, and their impact on his own margin.

In the past, Pirtle says he’s observed that some of his purchased feed prices didn’t move in the same direction as Chicago’s prices, ones that were driven by more local supply and demand.

“For someone else to tell you that this is a time that you are profitable, well, that just may not be true, depending on what other contracts you’ve made,” Pirtle says.

Pirtle says when he first learned of MarginSmart he hadn’t heard of anything similar to it. Without changing much about his bookkeeping process, he plans to use his monthly check stubs as the input expenses that the software will track.

“If you asked me if I’m going to buy feed or sell milk futures next month based on what I see in his program, I’d say probably not,” Pirtle says.

Pirtle first wants to be confident that the margin the software predicts for him is accurate. He’ll use a variety of methods to try to determine that point. On the feed cost side of his business, Pirtle says he’ll lean on his broker’s advice as to whether the program is providing a true outlook of feed prices compared to the Chicago board’s prices. Pirtle had his private commodity broker watch with him Linzmeier’s tutorial of the software.

On the profit margin side of his business, he’ll probably be comparing the software’s margin calculation to his quarterly financial statements that are created for his lender. He also might track the future margins the software projects and see how close they trend to his real margins.

When it comes to evaluating MarginSmart, Pirtle’s plan to test the software is similar to how he tests other new technologies he’s interested in buying. He says he thinks about how he can set up a trial that would prove the new technology is working and that it is doing it better than what he’s currently doing.

“The sales pitch is that if I put everything into it, I should know what my margin is,” Pirtle says.

Early indications are the two dairymen may be different in how they interact with the software. Linzmeier predicts that Brick might be more hands-on and adjust the data himself, while Pirtle may let Linzmeier set up most of the data and not tinker with it much between their planned phone visits. Linzmeier says he has both types of users among his current clients.

Linzmeier will work to set up the software with each dairy and provide ongoing consultation as needed. Brick already plans to have an Internet meeting every other week with Linzmeier.

The next article update from these technology test-drivers will be provided in the spring. PD

Linzmeier and his company MarginSmart can be reached at (920) 264-9139.

If you’re interested in applying to be part of a future Progressive Dairyman peer technology group, email Editor Walt Cooley for details.

Walt Cooley
  • Walt Cooley

  • Editor-in-chief
  • Progressive Dairyman
  • Email Walt Cooley

On a scale of 1 to 5, Progressive Dairyman found these dairymen are interested in new technology
for their businesses at the following levels.

Dan Brick 3.2
“Dan is the type of dairyman I envision would be using this software. He is hands-on, already forward-contracting milk and concerned about preserving a profit margin. If anyone can be diligent at tracking a dairy margin, it’s probably Dan. It will be interesting to see if one of the best candidates for this technology can make time to use it.” — Editor Walt Cooley

Top new technology categories of interest:

  1. Business/employee management
  2. Forage production/analysis
  3. Calf & heifer raising

Jack Pirtle 3.6
“Jack isn’t presently tracking his margin too closely, probably like most dairymen. He’s a younger dairyman who isn’t afraid to try something that’s different. Yet he’s not willy-nilly about choosing new ideas, and I think he’ll do his own due diligence to see if this technology is something a large-herd dairy producer should use.” — Editor Walt Cooley

Top new technology categories of interest:

  1. Forage production/analysis
  2. Milking & testing equipment
  3. Feed/nutrition

LATEST BLOG

LATEST NEWS