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How to make milk for less than $15 per hundredweight

Pauly Paul for Progressive Dairyman Published on 06 March 2019

We are all feeling the pinch (or gut punch) of low milk prices these days, but the blow doesn’t have to be as bad as it seems. In fact, it is actually possible to make money right now at a Class III base price of $14 to $15 per hundredweight (cwt).

Turning a profit during tough times doesn’t have to be difficult, but it does have to be different. The survival of a dairy depends on breaking away from the same old ways of doing things.

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I’m going to walk through with you the four basic steps I use to help struggling dairies find their footing, and they just might work for you too:

1. Determine your cost of production

You’ve probably been told before to know how much it costs to produce a hundredweight of milk on your dairy, but having an accurate picture of that number is more important now than ever before. This is not just a rough estimate; it’s a precise calculation generated not only from what’s on paper, but also from an understanding of where each of those line item expenses are coming from. An outside source may be helpful in getting a firm grip on this number.

2. Set a goal

Once your cost of production is known, figure out the difference between what it’s costing you to produce a hundredweight and what you are likely to be paid for that volume. Based on the difference, set a goal for the total percentage of expense reduction it will take to be profitable at the given price. For some dairies, that may be 5 percent; others could be 10 percent or more. With your goal in mind, go through each line item expense with the objective of cutting the cost by that specific percentage.

3. Reduce expenses

Examine each area of expense by digging into the numbers that make up each line item, along with getting out to the barn and observing protocols that could be creating costly inefficiencies and unwanted expenses.

You can’t produce milk for $17 per cwt when you’re only getting paid $15 per cwt. If there’s resistance to cut back in one area, it has to be taken out somewhere else. Invite vendors to be a part of the solution by asking them how you can work together to get costs down by the goal percentage.

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Some dairy owners feel challenged by these conversations because they have long-standing relationships and friendships with people whom they do business with. However, loyalty to a vendor won’t save your farm. Your success is their success. Consider including a third party to act as a facilitator to lead uncomfortable conversations toward productive outcomes.

Our team commonly sees opportunities to reduce expenses in the following areas:

Labor

When our team is called out to help a dairy, labor is one of the first areas we look at because it is one of the easiest and most effective to change. Many dairies are overstaffed, particularly in the milking parlor. Keeping an extra person around becomes a security blanket, but an expensive one. Most parlors can run smoothly when staffed with one person for prepping every eight to 10 cows. If there are more people than that in your parlor, start looking for ways to streamline steps and reduce unnecessary milking labor.

We see herds where protocols changed, but workflow was not restructured to reflect that. Perhaps rBST is no longer being used, or a breeding service has taken over the responsibility of administering shots. If jobs like these were taken away from a farm employee, did the farm, in turn, reduce paid labor?

It often takes outside eyes to see where changes like these can be made. A simple schedule rearrangement and reassignment of duties can even eliminate the need for a position. On one dairy, we were able to cut a night herdsman position by getting the main herdsman and cow pusher to work together.

In many cases, reorganizing labor allows dairies to save on the total cost without reducing wages and, in some cases, gives them the ability to pay a little more. These efforts go a long way in boosting employee satisfaction and retention.

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Feed management

Getting it right in the feed area not only maximizes milk production, but it is the critical point on which cow health hinges. Many expenses related to veterinary costs and treatments can be drastically reduced with a focus on mixing, delivering and pushing up quality feed.

Accuracy – We often use trail cameras to monitor bunks and feed areas, and use that footage for troubleshooting and teaching employees where improvements can be made. Common feed area mistakes include improper weighing and mixing, using the wrong ingredients or tipping the scale with the bucket. In the barn, empty bunks or poor feed pushing are all too common. Watching videos of these tasks is an eye-opener for many dairy owners. The good news is most are simple fixes that lead to almost immediate results and savings.  

Quality – When possible, the best time to correct feed quality issues is at harvest, ensuring proper timing, packing and storage to prevent problems later on.

Additives – If forage quality is compromised due to molds or poor harvesting and packing, additives can be a helpful tool in getting through feed until the new crop. However, they can also be an unnecessary and costly inclusion that dairy owners are afraid to take out of the ration, even when they are no longer needed. Express to the nutritionist the need for only additives essential to cow health in order to cut down on expenses.

Shrink – The amount of feed delivered to the farm that does not actually make it in front of cows tends to be a number much greater than most farms believe, and it leads to huge losses. Beyond feed area management, one way to reduce shrink is by replacing purchased feeds with as much homegrown forages as possible. This is because waste is much greater when bringing a product in. Sit down and strategize with the nutritionist on ways to use more homegrown feed, which also reduces purchased feed costs.

Equipment and maintenance

When it comes to equipment, incredible savings can be quickly realized by doing just one simple thing: turning it off. On so many dairies, skid steers, tractors and payloaders run all day – even when not in use – burning through expensive fuel and adding useless hours to the life of the equipment. In some cases, a simple switch of the key saves a couple hundred dollars per day.

There’s often opportunity to utilize labor more efficiently by training employees to perform routine and preventative maintenance. A skilled employee in the farm shop can do things for a fraction of the cost of paying a dealership. The same goes for milking equipment maintenance, like changing hoses, and general barn maintenance, such as fixing waterers and alley scrapers.

Heifer inventory

Only raise the heifers you really need. If the need is for 50 heifers per month, raise 55 per month. Achieve this with disciplined breeding using sexed and beef semen, and strict heifer culling. Cut the least profitable animals from the herd as early as possible, including poor-doing calves and those receiving multiple treatments. In some cases, dairies are not raising any heifers at all. For example, a dairy breeding only to beef semen and selling 1,000 calves per year for $200 each yields a $200,000 income stream, which more than affords the purchase of high-quality springers in today’s market.

Reproduction, veterinary and medicine costs

We see a huge variation in these expenses from farm to farm. Sit down with your vendors to compare costs to similar-sized operations.

4. Generate more income

An idle milking parlor could be an untapped opportunity to increase cash flow quickly. Maximizing milk through the parlor does not necessarily mean buying more cows, but rather milking cows more often – as frequently as four times per day. This can be done by running one more pen of cows through on a shift, and it can make a big difference. On a 1,700-cow dairy, that extra milking can fill another tanker load of milk per month, the equivalent of an extra $10,000.

Also, don’t be afraid to let go of unproductive property. That includes marginal land with low yield potential, as well as unused machinery. With a tune up, a coat of paint and an online ad, a tractor or chopper wagon can be turned into cash quickly.

These four steps provide the basic formula for reducing cost of production to a level at which a dairy can be make money. Of course, it takes a little time and some tough emotional and business decisions, as well as out-of-the-box thinking, but despite the milk price, it is possible for your dairy to be profitable.  end mark

Pauly Paul
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