Cutting costs is primary focus, but improving efficiency, ROI also important

Under today’s economic pressures, dairy producers aren’t just looking for ways to cut costs, but also want help improving returns on investments.

As seen in recent months, milk prices have dropped as much as 45%.  A recent study by The Hondo Group, a marketing communications company serving the agriculture industry, indicates that while cost cutting is a major focus, seeking tools to improve efficiency are also high on a dairy manager’s priority list.

Survey respondents noted that only 25% had contracted milk for 2009, as the rapid price decline caught many producers by surprise.

Survey respondents noted that only 25% had contracted milk for 2009, as the rapid price decline caught many producers by surprise.

Survey respondents noted that only 25% had contracted milk for 2009, as the rapid price decline caught many producers by surprise. 2008 milk prices ranged from $14.58-$20.26/cwt. while February 2009 milk prices ranged from $9.46-$17.75/cwt.  The average mailbox price at the time of the survey was $12.05/cwt., while those who had contracted were enjoying a mailbox price of $18.27/cwt.

The primary difference between previous periods of low milk prices and today is the cost of feed. With the milk-feed price ratio at an all-time low through the first quarter of 2009, the cost-income squeeze is more severe.

The primary difference between previous periods of low milk prices and today is the cost of feed. With the milk-feed price ratio at an all-time low through the first quarter of 2009, the cost-income squeeze is more severe.

Most dairy producers have weathered the low milk price storm before, as the survey reports. In 2002-2003, milk prices hovered around $10/cwt. for more than a year before rebounding in early 2004. The primary difference between that period and today is the cost of feed. With the milk-feed price ratio at an all-time low through the first quarter of 2009, the cost-income squeeze is more severe.

One might presume that producers are focused on reducing costs. But surprisingly, the study reveals that a majority are choosing to focus on the value/benefits they can realize, thus creating an opportunity for companies providing inputs and services to strengthen their relationships between dairy producers, looking for ways to maximize a dairy’s return on investments. 

Of the survey participants with more than 250 cows, 70% are looking to increase efficiency vs. just reducing costs.

Of the survey participants with more than 250 cows, 70% are looking to increase efficiency vs. just reducing costs.

Producers identified specific management changes they will make due to the dairy economy.

Producers identified specific management changes they will make due to the dairy economy.

 

Making changes

When asked what changes are being made on the operation to increase profitability, dairy producers report delaying equipment purchases as the primary adjustment.  Several respondents also note new facility construction delays. Other areas of specific management changes include:

Cow adjustment numbers were equally split between those increasing and decreasing herd size.  West coast herds were most likely to be reducing herd size, bringing herd numbers back in line with facility capacity and aggressively culling less productive cows. East coast and Midwest herds were increasing herd size, by pasturing dry cows and using existing facilities more efficiently.

 Of those reducing employees, the average reduction was 30% of the overall on-farm workforce.  Owners/operators were completing more of the day-to-day activities themselves as they are cutting back hours of part-time staff.  A majority noted the possibility of additional cuts in the future.

Producers are relying more on high-forage diets. Where mineral price shopping is intensifying, but dairy producers are keeping minerals at high levels to maintain reproductive performance is important. Concentrates, protein sources and “extras” were most likely to be reduced.

Change to vaccination programs and other areas of herd health are not anticipated. Emphasis was placed on herd health protocols and procedures to avoid  the downside risk to changes in this sensitive area.

Survey respondents are mating cows to more young sires and purchasing lower-priced semen or using breeding bulls more heavily on their farm.  Older proven bulls are still being used, but breeders are opting to utilize those in their own inventory and are reducing embryo transfer work.  Interest was noted in genomic tested sires and sexed semen.

While dairy producers are prioritizing on their return on investment (ROI) and value/benefits more than just the cost of a product or service, they are seeing the light at the end of the tunnel.  Many anticipate this cycle reversing before the end of 2009.

Based on the survey findings, herd managers are encouraged to have a firm grasp on their cost of production. While no one wants to think about the unexpected, it is vital to monitor daily inputs on the dairy and be prepared to handle the inevitable ups and downs of the dairy market.

The summary from the dairy economic study reports 36% response rate covering dairy producers from eight states across the country. The average respondent age was 40 years old, with more than 20 years in the dairy business. Herd sizes ranged from 25 to 3,600 cows with an average of 395 cows and 347 heifers.

The summary from the dairy economic study reports 36% response rate covering dairy producers from eight states across the country. The average respondent age was 40 years old, with more than 20 years in the dairy business. Herd sizes ranged from 25 to 3,600 cows with an average of 395 cows and 347 heifers.

The summary from the dairy economic study reports 36% response rate covering dairy producers from eight states across the country.  The average respondent age was 40 years old, with more than 20 years in the dairy business. Herd sizes ranged from 25 to 3,600 cows with an average of 395 cows and 347 heifers.

For more information on the Dairy Economics Study, or about The Hondo Group, contact Kim Jones, e-mail: kim.jones@hondogroup.com or visit www.hondogroup.com

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