I suspect that being in the dairy business these days is a lot like playing poker. “You have to know when to hold ‘em and know when to fold ‘em. Know when to walk away and know when to run.” The dairy industry continues to struggle its way through the worst financial crisis in modern times. For many areas of the country feed costs are higher than they’ve ever been and, for much of 2009, the price being paid for milk was at the lowest levels in years. And since feed costs are the single-highest cost on a dairy, it’s only natural for dairy farmers to try to reduce feed costs.
A speaker at a nutrition conference in 2002 advised his audience that we should be managing our dairy herds like we were always going to be paid $12 for the milk – because that’s where the price of milk is going to end up from time to time. Along with that we should focus on feeding efficiencies that produce the most milk for the least amount of feed input and costs. Then when milk prices finally did get around to recovering, you were most likely assured an acceptable income over feed cost.
Well, no one ever anticipated the mess we’re in now.
Taking a look at summarized income statements for three regions in the western U.S. shows that for the first half of 2009, milk prices never made it to $12. Feed costs for those dairies ranged from $10.32 per hundredweight to $5.75 per hundredweight of the milk produced. (See Table 1 .)
Income over feed cost (IOFC) for those dairies ranged from $4.82 per hundredweight to -$0.55 per hundredweight. Incidentally, all the dairies in this summary milked well over 1,000 cows. They all lost big money for the first six months of 2009 and we all know that the second half of the past year wasn’t much better.
For the foreseeable future, making money in the dairy business is not going to happen for most. The best you can hope for is to engage in damage control, go on the defensive, trying to keep losses to a minimum and hope you’re the guy that can hold out the longest. And for many it will mean the end of the road and they will have to sell out.
What’s interesting to me is the fact that the Idaho dairies in this summary are losing the most money per hundredweight – significantly more. The one statistic that stands out like a sore thumb is their milk production per cow. These Idaho dairies only averaged 58 pounds of milk while the California and Washington dairies averaged 70. (I am well aware that there are dairies that do just fine producing 58 pounds of milk.)
Even in spite of having the highest feed cost and the lowest milk price, there’s no question that making another 10 pounds of milk would have helped their situation considerably. Another way to look at it is their feed costs should be much lower for the amount of milk produced. Now, I know that every region has its unique challenges such as poor forage quality, high transportation costs, high costs of living or inclement weather and I won’t be so impudent as to suggest that dairy farmers in the Gem State don’t know what they’re doing.
Over the years as I’ve observed the ups and the downs of our industry, I’ve concluded that for the conventional dairy farmer who’s at the mercy of the federal milk pricing system for his pay check, whenever the IOFC dips below $7 to $8 per hundredweight on a dairy, making ends meet starts to become a challenge. Idaho dairies didn’t make enough to cover feed costs, let alone pay all the other expenses on the dairy.
What is well known about the financial health of the average dairy is that the more milk you spread out over fixed costs, the better off the dairy will be. Yes, even in times of financial duress, the more milk you make per cow, the better the chances are that you’ll keep your head above water – or at least not sink as deep. Then, of course, there’s always the argument of not capitalizing dairies so that we need to produce this much milk.
We all know that trimming feed costs is often a no-win situation. Cows, heifers and calves will all come up short on required nutrition. Stretching that load of grain a couple of extra days means that every animal got less to eat. Milk cows will slip a couple of pounds of milk. Daily gain on calves and heifers will be less. Energy and protein levels will be compromised to the point that future reproduction will be affected. Cows won’t show heats. Metabolic problems in fresh cows such as milk fever, displaced abomasums and ketosis will insidiously increase and before you know it, an entire lactation is spiraling downward. Cash flow, which is already terrible, will only get worse.
Times are tough – no doubt about it. When the feed company cuts you off because your bill’s too big, it’s a pretty big nail in the coffin. And it’s impossible to keep milk production up when you can’t buy feed. The trick to making it through these trying economic times is to know what expenses to trim and when to trim them while not compromising milk production. On most dairy farms, it’s the cows that pay the way. It’s not about how cheaply you can produce milk that makes most dairies profitable. It’s about how much milk every cow produces and how efficiently that milk is produced relative to the feed cost. Even when milk is only getting you $10 per hundredweight, another 10 pounds of milk per cow will gross you another dollar per cow.
Every dairy farmer has to decide where to cut back. And I know that decision gets to be intensely personal. Try not, however, to hurt your milk production per cow. Yes, the cows that aren’t paying their way must go. They should have been long gone, anyway. Feed intakes are all-important in order for cows to make milk. Their diets have to be properly balanced. Focus on feeding efficiencies, no matter what the cost of feed and the price of milk might be. PD
- Email John Hibma