From the
CONCEPTIONS Dairy route newsletter Sept Oct 2024
Mark
Curry (989) 984- 7027 Route services and sales
Sue
Palen (989) 277- 0480 Office manager and Product specialist
Greg
Palen (989) 277- 6031 “aAa” Breeding Guide/ Certified Seed Specialist
Mich Livestock Service, Inc “For
the Best in Bulls” and “High Energy Forages”
110 N Main St (PO Box 661) Ovid,
MI 48866 office ph (989) 834-2661 fax (989) 834- 2914
You have
heard the old joke: “Question: what do you call a church basement full of
farmers?” Answer: a WHINE
cellar!” We whine about things we cannot control -- such as the weather, the prices we pay for inputs
we use, the prices we get for what we produce. We look at every new idea and new
technology, hoping to find the magic bullet for profitability. Meanwhile, the reality of successful farming
is doing the basic things well… every
day. You cannot spend your way to
prosperity (in spite of what all the
politicians claim every election cycle!!)
First: THE PRICE
OF MILK
Milk is a “commodity”, made that
way by government pricing policy and cooperative pooling. The many ways you can differentiate milk at
the farm are negated by FMMO class definitions and the dilution of putting it all
on the same truck route, making it a “generic” raw product. Economists tell us that raw materials of any
kind fall into this category.
Producers have lost control over its pricing, as its “wholesale” price
is determined after initial processing allows processors to establish its
“value” based on which markets they choose to serve.
Profits for any “commodity” raw material are NOT earned by increasing
volume of production (even though your producer cash flow increases) but by
controlling COST of production. Only
those who produce below average costs earn profits, as the raw commodity
markets rarely pay more than average cost of production. Produce one pound (one gallon) (one bushel)
more of any farm commodity than the wholesale processors require, and the price
of ALL we produce will fall to absorb that surplus increment of industry yield. This is economic truth.
Second: THE
COST OF PRODUCTION
You can divide the dairy industry into two groups: dairy “farmers” (those producing the feed their cows will
eat) and milk “factories”
(those who buy all their feed from neighboring crop farmers and
commodity brokers).
Theoretically, the dairy “farmer” should have cost advantages over the
milk “factory”, as those crop farmers on whom factory farms depend hope to have
a profit margin in the feed they sell to them. But this logic breaks down once we realize
that feed crops also have a “commodity” character. Milk “factories” avoid the heavy
iron capitalization that modern crop farming has.
Third: CATEGORIES
OF COSTS
Many years ago the Minnesota FHA district hired a major CPA firm to study
their dairy farms, which had the highest levels of defaulting and “troubled”
loans of all FHA districts nationally.
The CPAs broke dairy farm costs into four operating units: (1) producing milk, (2) raising herd
replacements, (3) growing forages, (4) growing grains. The results were:
Producing milk. High Minnesota
production levels generated a 25% profit margin
Raising replacements: While
showing an average 5% profit margin, only half of all the dairies actually
raised heifers profitably. In those
dairies cows left faster than heifers could grow up. (Note this time period was prior to the
commercial availability of gender-selected semen.)
Growing forages: The average farm
had a 20% loss, ie, cost more to grow and harvest than their commodity market
value. The CPAs said these farmers
had too much machinery cost per acre, compared to the industry average for crop
farming.
Growing grains (primarily, corn and soybeans): The average farm had a 10% loss. However, the CPAs noted that the loss would
have been more like 30% if not for federal crop subsidies.
To summarize, the typical FHA financed dairy farmer made milk OK, but
lost more than milk checks generated on his breeding and farming
practices. Household income came
mostly from sale of deacon bull calves and culled cows. (Is that any different than today’s
economics?)
Cost control solutions: GENETIC
SELECTION for both CROPS and
ANIMALS
“Peer pressure” in the dairy industry is that you select from the HIGHEST
YIELDING corn, soy, alfalfa and annual forage varieties… just like crop farmers
do. In this, the peer pressure says
you FERTILIZE at high levels, to insure the highest yield per acre. Then we pile all this volume of feed in
front of our cows, expecting them to eat more in order to produce more. Without realizing it, we are buying into
the “more yield makes a profit possible”, a direct contradiction of “lower your
costs” commodity economics.
Within plant genetics there is a wide variation in the nutrient density and
fiber digestibility of any crop you choose to grow. The high yielding varieties may require
your cow to eat a pound of dry matter for every pound of milk she gives
you. But if you choose more nutrient
dense, higher fiber digestibility varieties, you could get 50% more milk per
pound of dry matter!! In fact, you are
less likely to run out of feed by spring if you grow the varieties with the
highest concentration of available nutrients, rather than chasing after higher
tonnages.
This is ultimately why we prefer to sell Byron Seeds forages
and corn.
After feed, your next major cost is providing replacements. In traditional dairy designs we had one
heifer on hand per cow of milking age.
Heifers today consume 25% of the average gross milk value each cow
produces (and in that Minnesota study, 25% was an average profit margin). This is financially unsustainable, even
with current deacon calf and cull cow salvage prices at all time highs. Cows need to live longer productively
than they do today to generate profitability at any level of
attained herd average.
Another way to look at that is, if it costs $ 1642.50 to raise a heifer
calf to production (estimate $2.25 per day over 730 days of heifer raising)
then it takes $ 6570.00 of milk sales for each one you raise (32,850 pounds of
milk at a net $20/cwt you receive from milk checks) when you only get the
average 25% profit over production costs.
Note this:
using premium priced gender-sorted semen has NO impact on lowering
the cost of replacements. If
anything today getting a salable deacon bull calf generates a lot more income
than an extra heifer calf.
Comparative culling rates:
At 2.5 lactations per cow, you will cull 40% of the
milking herd annually. At this level
you will get fewer heifer calves per cow lifetime than is required to maintain
herd size. This is still the national
average for dairy farms, explaining why there is a market for gender-selected
semen.
At 3.0 lactations per cow, you will cull 33% of the
milking herd annually. At this level,
and with good calf management, you may have just enough heifers to maintain
herd size.
At 4.0 lactations per cow, you will only cull 25% of the
milking herd annually. At this level
you not only have enough heifers, you will produce more milk oer cow from the higher
percentage of matured cows producing at matured levels of milk. Zoetis’ “wellness trait” research says the
cows who are still productive at maturity produce 30% more milk than heifers typically do.
The Genetics Industry has had an obsession over selection for faster
maturity of production, and the theories they use to promote Genomic selection
have accelerated this. The CDCI
recently declared that they are eliminating “Mature Equivalent” (ME) factoring
of lactation records for sire evaluations, basically because the majority of cows today only complete two lactations. The peak
lactation yield is their second lactation.
After this, cows of modern genetics are just aging rapidly and
production declines. This kind of
genetic selection basically has raised the cost of replacements higher than
ever before. Chad Kreeger, the
largest online source for cows in the upper Midwest, says there is a
replacement cow shortage, and prices have moved above the $3000 average mark
for the first time in his career.
This is why we believe in sire selection based on cow family
maturity.
This is also why we
believe in the “aAa” breeding guide.
If you wish to lower your cost of replacements, you have to change your
breeding programs so that matings are focused on producing “balanced physiques”
adaptable to ever-changing cow
environments; and sire selection is based on “longevity of productivity” so
that higher mature levels of lactation production can be realized. Under this approach, you will again have
more replacements than you need (Grandpa’s typical experience) and you can sell the extras at what is now a
profitable price over the costs of raising them.
Cows from these kinds of longevity cow line
genetics break the cycle of inbreeding depression that Genomic lines express in
their short, higher-cost herdlives.
Your cost of production will go down right alongside costs of
reproduction and rearing replacements.
You will become that “least cost” producer whose dairy generates
a dependable profit not matter the price of milk.
