Farm profitability: Take a good look at these 6 numbers

Posted on December 9, 2019 in Dairy Performance
By Marin Western
Today’s dairy producers have a wealth of data at their fingertips. Details for health, reproduction, feedings and inventories just scratch the surface of the numbers that can be generated from farm data. One of the biggest challenges is what to do with all this information.

Dairy producers ask, “What do these numbers mean?  How can I make the most of them?”

In 2007, a study by Compeer Financial and Zoetis collected financial and production data from farms in the Midwest to understand what factors affect net profitability of dairy farms. Throughout the next 11 years, this data was compiled and analyzed to determine that six factors, now coined “Six Dairy Financial Drivers,” account for 85% of the variation in farm profitability.

  1. Somatic cell count (SCC) is a great indicator of herd health and had the greatest correlation with net herd profitability. I’ve heard Zoetis team members mention it’s the one metric they always look at because of how highly correlated it is with other production and financial metrics. The difference in profitability between herds with low (132,000) and high (264,000) SCC was $159 per cow per year. Higher SCC is correlated with lower energy-corrected milk and pregnancy rate, and higher death loss and days open.
  2. Energy-corrected milk (ECM): Especially in today’s markets, it is important to have high milk production and high components. As ECM increased, pregnancy rate increased while death loss and SCC decreased. Higher profitability herds averaged 92.7 pounds of ECM per cow per day while lower profitability herds averaged 72.7 pounds of ECM per cow per day for a difference in profitability of $192 per cow per year.
  3. Death loss is also highly correlated with net herd profitability. As death loss increased, ECM decreased while SCC and net herd replacement costs increased. Thinking through that, animals that die not only lose cull value, but also cost the farm money to be disposed of and to be replaced with a younger animal. Lower profitability herds averaged 10% death loss annually, while higher profitability herds averaged 4.3%. This difference in profit was $138 per cow per year.
  4. Pregnancy rate: As pregnancy rate on farms increased, SCC and days open decreased, while ECM increased. Higher profitability herds averaged 27% pregnancy rate while the lower profitability herds averaged 18% pregnancy rate. The difference in profitability was $144 per cow per year.
  5. Net herd replacement cost is defined as the difference between replacement cow value and average book value of dead and sold cull cows. Looking closer at this, is turnover high and do we have a lot of younger animals coming into the herd that don’t make up for the lost production? As net herd replacement cost increased, so did ECM, SCC and death loss. Lower profitability herds averaged $1.91 per cwt of ECM going toward replacement costs, while higher profitability herds averaged $0.91 per cwt ECM, and this difference in profitability is $376 per cow per year.
  6. Heifer survival rate is defined as, if a heifer calf is born alive, what are the chances she makes it into the milking herd? Losing young animals is correlated with net farm profitability. Higher profitability herds averages 95% heifer survivability, while lower profit herds averaged 91% heifer survivability.

Looking at these profitability drivers, as well as other farm production records analysis, your Vita Plus consultant can work with you to benchmark your farm, set goals, and focus on profitability.  We have tools to assist your decision-making and establish actionable management items to quickly and positively impact farm profitability.

About the author:  Marin Western is a Vita Plus dairy specialist in central Michigan.  She earned her bachelor’s degree in animal science and agribusiness management at Michigan State University.  She continued there to earn her master’s degree in dairy nutrition through the Vita Plus Dairy Nutrition and Management Fellowship.  Part of her fellowship research focused on dairy cow production responses to different fat supplements.  As an undergraduate student, Western worked at a Vita Plus intern and performed research focused on the critical analysis of bacteria and various spoilage agents in forages.

Category: Business and economics
Dairy Performance
Milk production and components
Technology and data management