Managing dairy costs

While rising feed prices and other production costs, are putting pressure on the dairy industry, a Purdue Extension dairy specialist says there may be ways for dairy farmers to reduce their on-farm input expenses.

“The three biggest input costs for dairies are feed, labor, and replacement heifers,” said Mike Schutz. “Two out of the three are influenced dramatically by corn prices.”

With rising energy and grain prices, Schutz said the economic model for dairies is shifting back to diversification. Producing feeds such as hay and grains allows farmers to better control their input costs.

“The dairy economic crisis of 2009 showed record low milk prices and high feed costs, and farms that were diverse were positioned to weather that crisis,” Schutz said. “During that year, the average dairy lost between $350 and $1,000 per cow, but losses were absorbed better by those raising their own feed.”

Since 2009, the milk price has increased; however, the margin between milk price and feed cost remains small. The dairy industry typically expands when there is a milk to feed price ratio of at least 3-to-1, but in April 2011 the ratio was 1.84-to-1.

Despite the high prices, corn is still an affordable feed with a high energy value, Schutz said. Farmers also can consider byproduct feeds but should ensure that they are able to return a profit.

Other ways dairy farmers can reduce input costs include calculating feed requirements and properly caring for forages.

“Feed deliveries should match cow consumption as closely as possible,” Schutz said. “It’s also important to avoid shrinkage by covering forages as quickly as possible and preventing spoilage.”

For the animals, making sure cows are bred back quickly can help to reduce costs. A farm loses $4-$5 per day for each cow that is not bred in a reasonable time frame.

In order to identify when a cow is in estrus, many dairies are now using pedometers that measure a cow’s activity and body position. In addition to keeping reproductive costs down, pedometers can also help identify diseased animals.

Automated technology also can refine dairy operation processes to reduce labor costs. Automatic calf feeders lead to calves being fed more frequently and can increase growth rates.

Robotic milking systems are an option that can reduce manual labor by 60-70%, Schutz said. But producers must carefully determine whether up-front costs allow the investment to be profitable for their farm.

Forward contracts are a potential source of stability in a dairy farm’s income. According to Schutz, the all-milk price per hundredweight is currently about $20, and futures for late summer and fall look strong.

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