Cutting costs on your dairy farm

By Dianne Shoemaker

A penny per hundredweight trumps a dollar per cow in 2016

For the country’s dairy farmers, there doesn’t appear to be anything “sweet” to anticipate in ‘16. On the contrary, slimming down production costs is essential. With a 4-year average total cost of production of $19.66 – which is already adjusted for bull calf and cull cow income –there is a yawning chasm between production costs and milk income per cwt.

Where to start slimming? First, let’s determine “what is”. What are the big players in the list of costs?

Table 1. Top 10 production costs, 2013 and 2014 Ohio Farm Business Analysis Program, average of all farms.

2013

2014
Expense Item % of direct & overhead costs Expense Item % of direct & overhead costs
Feed 57.2 Feed 57
Labor 11.1 Labor 10.7
Depreciation 5.1 Depreciation 4.9
Supplies 3.7 Supplies 3.9
Vet & meds 2.7 Vet & meds 2.6
Repairs 2.6 Repairs 2.7
Hauling and trucking 2.3 Hauling and trucking 2.4
Fuel and oil 2.0 Miscellaneous 2.4
Bedding 1.9 Bedding

2.1

Utilities/Misc (tie) 1.8 Custom hire 2.0

No surprise to any dairy farmer, feed costs are the single highest cost on all farms. These feed costs are for all animals; milking and dry cows, replacement heifers and calves. All homegrown feed is valued at total cost of production. The top 4 costs were the same in both years: feed, labor, depreciation and supplies. Supplies and vet & meds switched places, and there were minor changes in the bottom four expenses, all 2.4% of total expenses or less.

These numbers represent the average for all farms. There is a substantial range in herd sizes in these farms. Does herd size make a difference? In 2013, the top 4 expenses, accounting for 77% of total costs, were the same across all herd sizes. Feed, labor, depreciation, and supplies. Herd size was broken down into 51 to 100 cows, 101 to 200 cows, 201 to 500 cows, and over 500 cows categories. The only thing that changed between herd sizes was in the 201 to 500 cow category where supplies were number 3 and depreciation was the 4th highest cost.

What is the take home? For most herds, the 4 highest costs will be feed, labor, depreciation, and supplies. How much potential – and realistic – savings are there for your farm? We don’t want to cut costs only to negatively impact future health and production.

The best tools for comparing your farm to other Ohio farms are the benchmark reports included in the Ohio Dairy Enterprise Analysis Summaries which can be found at http://u.osu.edu/farmprofitability/ohio-farm-business-summaries/ Directions on the charts explain their use. Bottom line, you can see the range of income and expense items for other Ohio farms. Specifically these allow farms to set realistic goals for trimming expenses.

Pennies or dollars?

How is your time best spent? Trying to cut expenses by a dollar per cow or a penny per hundredweight? For every hundred cows you milk, you will save $100 for every dollar you cut in production costs per cow. If each of those cows are putting 24,000 lbs. of milk in the tank each year, finding one cent per cwt in savings will save $240 per year. A penny per cwt. trumps a dollar per cow in 2016.

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