Dairy Enterprise Analysis

By Curtis Mahnken, KFBM

The difference between 2008 and 2009 for dairy farmers is staggering. All year we’ve heard and seen horror stories of what has been happening to our dairy neighbors here and across the U.S. To examine and identify areas of praise, concern and guidance for dairy farmers in Kentucky Farm Business Management, KFBM specialists performed enterprise analyses. In the study there were twenty-three dairy enterprises which averaged 164 cows and 18,439 pounds of milk sold per cow. Milk price received was $20.93, but feed prices were up which is reflected in $198 in returns per $100 of feed fed. The enterprises were examined several ways and key findings are included. (Note that all results come from the Dairy Enterprise Analysis report coming out soon).

The first factor that was considered when looking at these enterprises is herd size. There was evidence that bigger is better, which can be seen in key areas such as returns per $100 of feed fed. The over 200 cows group had $217 per $100 of feed fed, while enterprises falling in the 100-200 cow range experienced $204, and under 100 cows had returns of $180 per $100 of feed fed. When looking at milk sold per cow, bigger was better as well (>200: 19,810, 100-200: 18,246, <100: 17,296). However, this pattern was not maintained when examining expenses, as the lowest cost of production belonged to the 100-200 cow group ($19.49/cwt of milk sold), followed by the 200+ group ($20.12/cwt of milk sold), and the less than 100 cow group ($23.90/cwt).

The next factor examined was management returns. Enterprises were considered “low” if their management returns were less than $1/cwt of milk sold, “middle” if their returns were between $1 and $4/cwt of milk sold, and “high” if above $4. What is interesting is that size appears to have a general negative relationship with management returns. The high group averaged 135 cows, the middle group had 152, cows and the low group had 199 cows. When looking at production efficiencies, the high group had the best labor efficiency (45 cows per full time equivalent (fte), 783,212 lbs of milk sold/fte), though the middle and low group were mixed with labor efficiency (middle-36 cows/fte, 646,584 lbs milk sold/fte), (low-35 cows/fte, 682,510 lbs milk sold/fte). However, the low group had the best milk per cow (19,082 lbs milk sold/cow), followed by the high group (18,184 lbs/cow), and the middle group (18,037 lbs/cow). Costs of production were the lowest for the high group ($17.90/cwt of milk sold), followed by the middle group ($21.09/cwt of milk sold), and the low group ($24.31/cwt of milk sold).

By examining the costs of production from the management returns section we can get an idea of break-even prices. When $20/cwt of milk sold was a “typical” price, only the high management returns group was experiencing positive returns. Now that the milk price has plummeted and feed prices have retreated some, the high group will be feeling the pinch as well. However, there are areas of strength and areas that can offer relief. Milk sold per cow is solid given the climate of Kentucky, and there is tremendous room for improvement when looking at labor efficiency. It is vital for producers to examine their records and utilize whatever resources they can to survive the storm now and thrive when the next high price comes.