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The hidden opportunities to increase profits: Land rent and labor

Pauly Paul for Progressive Dairyman Published on 07 February 2017

Ask a dairyman what keeps him or her up at night, and chances are it will be one of these issues:

  • How will I afford to keep renting land at sky-high rates?
  • Who is going to milk my cows?

These two concerns – land rental rates and labor – add another layer of stress to already tough financial times, but they are also areas where I see an opportunity to rethink current practices and even uncover savings.

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Taking a deeper look into the management of these cost centers could improve the profitability of your dairy, and that’s something that can help you sleep better at night.

Land rents

For the past several years, land owners have enjoyed the competition between dairymen for prime acreages. When commodity prices were high, dairies could just barely pencil out the payments; however, that is no longer the situation.

In some cases, it may even be more profitable for a dairy to purchase feed rather than pay a high rent rate on top of production costs. As you negotiate land rents before the cropping season, I recommend evaluating two key things: proximity and profitability.

Proximity: Sit down and map out all of the land you currently own and rent. The land that is most advantageous to control is that within a 5-mile radius of your operation. This should be your priority to minimize trucking costs for crops and manure.

Profitability: Figure out your cost of production per acre. Many dairies have accurate, detailed data available to tell them how much feed is produced from each acre. This will vary from field to field, and it’s important to know the difference because you will want to prioritize the land you continue renting based on that which is most profitable.

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Next, compare the cost of production to the cost per acre to determine whether you would be operating at a loss, gain or break even at the current rental rate.

Once you know which acres are your top priorities and how much you can afford to pay for them, sit down with the land owner and discuss the situation. Be open and honest about the challenges of low milk prices and your cost of production on their land.

Some may be willing to lower the rate to an affordable level, while others would prefer to open up the rental opportunity to neighboring dairymen.

In regions where land is extremely competitive and rental prices are out of control, I’ve also seen success when dairymen come together. Instead of fighting over properties, they come to an agreement that neither will pay over a certain dollar amount for rent.

This has resulted in some really promising conversations with land owners to lower rates to a more affordable level.

Labor force

Many of the dairies I work with are challenged to find a reliable workforce. But often I see situations where the dairy’s management is its own worst enemy, and that can be the root of the labor struggle. When I analyze a dairy, there are two areas I dig into to uncover labor inefficiencies:

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Employees: As the saying goes, “One bad apple can spoil the bunch.” The same is true on a dairy. One employee with a bad attitude could be the reason for high turnover and poor morale – both of which ultimately hold a dairy back from reaching its full potential to produce milk and get cows bred back quickly.

Sometimes the solution is as simple as sitting down with that person and evaluating their skill set. They may be a better, happier employee in a position more fitted for their talents; on the other hand, a career change may be the best option for a person unwilling to change.

That one “bad apple” can cost you more than you think. For example, a dairy I once worked with was averaging under 80 pounds of milk per cow. I determined the limiting factor in achieving their goal of over 90 pounds a day was the habits of the feeder.

After encouraging that person to make some changes, milk production almost immediately exceeded their goal. But the employee fought the changes and fell back to old ways. The result of that could be seen on the daily milk records and felt in the owner’s pocket. That employee was let go, and a new person was hired who was willing to follow protocols.

When problems like these are addressed, I often see a direct response from other employees. Morale improves, and suddenly jobs that weren’t getting done are now completed.

Management: When a dairy is struggling, it’s not necessarily the employees’ fault. Morale starts at the top. Sometimes dairy producers have to take a good long look in the mirror and determine if their management style might be to blame:

  • Are you treating people how you would want to be treated?

  • Are the only words you say to an employee to criticize them?

  • When was the last time you offered a compliment to an employee?

  • Have you done all the jobs on the dairy yourself to really know what a reasonable performance expectation is?

  • Do you hold employees accountable for their actions?

  • Do you let too many things slide and avoid confrontation?

  • Are you keeping your word and delivering on your promises?

Being a manager isn’t easy. And sometimes, the owner of the dairy realizes they aren’t the best manager. It’s a tough reality, but the best solution may be to hire an outside person who excels in the areas where you lack.

Not everyone is cut out to manage both cows and people; some are really good at one and not the other. Don’t be afraid to admit your own shortcomings.

Odds are, if you aren’t doing the things that match your skills, talents and passions, you are probably not happy. And that is something that trickles down to every employee on the dairy.  end mark

Pauly Paul
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