Cutting costs on your dairy farm

A penny per hundredweight trumps a dollar per cow in 2016

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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 four-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.

By the numbers

Where to start slimming? First, let’s determine “what is.” What are the big players in the list of costs? Take a look at the table of Ohio dairy farms’ top 10 production costs.

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 four 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.

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

20132014
Expense Item% of direct & overhead costsExpense Item% of direct & overhead costs
Feed57.2Feed57
Labor11.1Labor10.7
Depreciation5.1Depreciation4.9
Supplies3.7Supplies3.9
Vet & meds2.7Vet & meds2.6
Repairs2.6Repairs2.7
Hauling and trucking2.3Hauling and trucking2.4
Fuel and oil2.0Miscellaneous2.4
Bedding1.9Bedding2.1
Utilities/Misc (tie)1.8Custom hire2.0

Herd size

These numbers represent the average for all farms. There is a substantial range in herd sizes on these farms. Does herd size make a difference? In 2013, the top four 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 No. 3 and depreciation was the fourth highest cost.

Now what?

What is the take home? For most herds, the four 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://farmprofitability.osu.edu 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 pounds of milk in the tank each year, finding one cent per hundredweight in savings will save $240 per year.

A penny per hundredweight trumps a dollar per cow in 2016.

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