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Lenders learn knowing the numbers is critical to making robots work

Myrannda Kleckner for Progressive Dairyman Published on 09 November 2018

Robot milking systems have allowed some farms to reduce labor costs and introduce new technologies. However, understanding the cost structure and how it will impact the business has been a challenge for many lenders. That challenge has kept farms in Pennsylvania and other regions from adopting the technology and benefiting from the innovation.

Lenders and financial consultants attending the Dairy Financial and Risk Management Conference, hosted by the Center for Dairy Excellence in September, learned more about the differences in the cost structure between robots and conventional systems from Jeff Peissig of Menomonie, Wisconsin.

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Peissig is the general manager of Advanced Dairy LLC, a DeLaval dealership specializing in robotic milking, rotary parlors, dairy automation, milk parlors, animal health and milk quality. He is entering his seventh year as a dealership manager, but has over 30 years of experience with dairy lending and business consulting. Peissig shared benchmarks both producers and lenders could use to compare cash flow scenarios between robotic and conventional milking systems.

Understanding the numbers

To determine if a robotic system will fit financially, the producer and his or her lender must know the dairy operation’s cost structure, including what portion of revenue must go toward capital debt and what remains to service other costs. Overall, Peissig stressed that any dairy, whether it is traditional or robotic, should have its labor and capital costs under $5 per hundredweight (cwt). “How this breaks down varies widely from farm to farm, but keeping the collective total below 5 dollars is key to remaining competitive in a commodity market,” he said.

On average, traditional farms can utilize up to $2.50 per cwt for labor and wage costs. For robotics, labor and wage costs must be $1.50 per cwt or less to offset the additional capital investment of the robots. This labor includes both the owner and hired employees. That’s because robotic milking systems can require up to $1 more per cwt for principal and interest payments than a traditional dairy would require.

Peissig identified three components to a farm’s cost of production: feed, other expenses and capital and labor. “With a 17-dollar milk price, feed typically accounts for about 8 dollars of the costs associated with that price. Other variable expenses account for about 4 dollars, which leaves about 5 dollars for labor and capital costs,” he explained.

To illustrate his point, Peissig broke down the average costs of Minnesota dairies between traditional and robotic facilities. He also shared comparisons between sand-bedded and non-sand-bedded barns. In his examples, the labor costs for the non-robot barns were $1 to $1.50 higher per cwt, while the capital costs were $1.50 to $2 higher for the robotic facilities.

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“You need to design a size and type of dairy that meets your wage expectations and debt service requirements,” he said. “Your clients should be building robotic barns because they like dairying, not because they want to spend less time in the barn.”

Peissig also emphasized how important barn design is to support desired efficiency. “This includes barn orientation,” he said. “The long axis of barns should run east to west. If a barn is built this way, it will help to avoid sun exposure to any outside stalls. In addition, it can increase wind flow on hotter days. Ventilation fans should be placed on the north side of the barn, increasing wind speed and fan efficiency.”

Knowing the obstacles and benefits

If integrating robots onto a farm, Peissig cautioned that a producer must be aware of the obstacles. Some of the obstacles he identified were transitioning to pellet usage, training heifers for the robots and introducing new technology into the management process. To ease the transition with heifers, he encouraged producers to expose heifers to robotics before calving. This includes pen movement, stall mechanics, pellet feeding and gate usage.

The integration process does not stop there, though. Peissig suggested working with a small group, like two or three cows, to teach robot entry and feed loop. “A smaller group of cows will allow them to be able to see what is going on and become accustomed to the robot sooner,” he said. He suggested having gating near the robot that imitates a chute for the cows to enter while practicing.

Once the robots are integrated onto a dairy, Peissig said there will be an increase in information useful for cow and herd management, and less stress on the cows.

Peissig said the typical day for cows in non-robotic dairies includes: 2.6 hours milking and holding, 11.2 hours resting, 4.4 hours feeding and 7.2 hours visiting stalls.

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For robotic dairies, these numbers changed to 1.2 hours milking, 12.2 hours resting, 4.7 hours feeding and 10.1 hours visiting stalls. The increased time spent eating and visiting stalls can lead to an increase in milk production.

Peissig encouraged producers to evaluate their own operation to determine if robots were a best possible scenario with their cost structure and wage expectations. In the end, it is about the ability of the individual operation to increase its own efficiency and production.  end mark

Myrannda Kleckner is the communications and marketing manager for Pennsylvania’s Center for Dairy Excellence.

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