Dairy profitability: Proper management key to success

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RIVER FALLS, Wis. – An array of management decisions can make a big difference when it comes to showing a healthy profit on a dairy farm.
Amber Horn-Leiterman, at the University of Wisconsin-River Falls, examined records from 250 high-yielding farms that participate in the Agricultural Financial Advisor program of the University of Wisconsin-Extension and the Center for Dairy Profitability.
Of those farms, 95 were classified as profitable and 155 as less profitable.
The numbers. On the profitable farms, farmers received 11 cents in profit for each dollar they invested in assets. For the less profitable farms, the return was just 3 cents for each dollar invested.
Profitable farms generated 54 cents in sales for each dollar invested in assets, while less profitable farms generated only 41 cents for each dollar invested.
Profitable farms retained 20 cents of profit for every sales dollar, but less profitable farms only retained 8 cents for each dollar in sales.
Milk production. While both sets of farms had comparable milk production levels, the profitable farms were earning higher milk prices.
The researcher attributes this to high milk quality, better milk components, and/or to a more effective milk-marketing plan.
Horn-Leiterman also found profitable farms had less land in crop production and kept an average of 37 more cows in the herd.
She also found the less profitable farms spent more for things like veterinary services, seed, chemicals, fertilizer and lime.
While the less profitable farms had more land in crops, they spent about the same amount as the profitable farms on purchased feed.
Cutting profit. Horn-Leiterman said many dairy farmers assume they have to do everything themselves – milk cows, raise, heifers, grow crops for feed.
However, her study showed trying to do it all may cut into profitability.
“Sometimes it’s more profitable to hire someone else to do custom work or to buy feed rather than try to grow it all on the farm,” she said. “It’s not always the case, but you really need to do the research to figure out if it’s more profitable to have someone else do it in order to leave more time for other jobs.”
Financial analysis. Gregg Hadley, University of Wisconsin ag economist and a farm management specialist, co-authored the report.
The study’s findings point to the importance of using financial analysis to diagnose problems and create strategies for solving them, he said
“Farmers too often assume that the more milk they produce the more profitable they will be,” Hadley said.
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Lessons for managing a more profitable dairy farm:

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