By the Numbers - A Close Look at Key Factors that can Affect Your Farm's Bottom Line

If you're looking to improve the profitability of your dairy farm, pay attention to calving interval, somatic cell counts and age at first calving. They likely have a much greater influence on your bottom line than annual herd turnover.

In a study of 205 dairy farms using the 2001 Ontario Farm Management Analysis Project (OFMAP), annual herd turnover didn't seem important. The average of the 205 farms, and the top 50 and bottom 50 farms in the category were compared.

Herds averaging 36.3 per cent annual herd turnover were compared to herds with 22 per cent annual herd turnover. There was almost no difference between the two groups for net farm income (NFI), NFI per person or NFI per cow (see Table 1).

The report used NFI before paid labour in an attempt to remove the effect of incorporated farms that may declare labour expenses for owners as a business expense. Partnerships and proprietorships can't do this. As well, highly profitable farms are in a position to make larger labour payments to other family members.

Operating Cost Percentage (OCP) was used to calculate whether there was a significant advantage in the ratio of expenses to revenues. OCP is calculated as expenses-excluding labour, depreciation and interest- divided by total revenue. A five per cent difference is the same as $5,000 for $100,000 of revenue.

Calving interval had the greatest impact among the four factors in 2001. There was a difference of 1.7 months between the high group at 14.5 months and low group at 12.8 months. The low group had an NFI per person nearly double that of the high group. This group's NFI per cow was 80 per cent higher and the OCP was 10 per cent lower. The high group shipped less milk per cow per year, while the low group had more cows in the herd.

The analysis showed that groups with lower age at first calving and lower bulk tank somatic cell counts (SCCs) tended to be more profitable in comparison to corresponding high groups.

For age at first calving, the difference of 4.1 months between the high group at 28.3 months and low group at 24.2 months resulted in a 40 per cent increase in NFI per person and NFI per cow for the low group. The low group shipped nearly 1,000 litres more per cow, had 10 more cows in the herd and recorded a calving interval 0.7 months lower.

The low SCC group recorded 36 to 44 per cent better NFI per person and NFI per cow than the high group. The high SCC group shipped 900 litres less per cow.

The 2001 analysis also looked at two other factors that producers commonly talk about-milk shipments per cow and herd size. Both factors had a greater impact on profitability than in the same analysis completed in 1999 (Ontario Milk Producer, February 2001).

Shipments per Holstein cow for the low production group averaged just over 5,700 litres. The high group averaged 9,000 litres, a difference of 36 per cent. In the low production group, the OCP was seven per cent higher. NFI per person and NFI per cow were about half that of the high production group. The 1999 study showed a difference of about 20 per cent.

A look at herd size shows that the group milking more cows taking advantage of a of seven per cent lower OCP combined with greater milk shipments per cow to generate an NFI per person that was more than double that of the smaller herd group. The NFI per cow was 60 per cent greater.

The large group had three times as many cows, but relied on two times the labour, 3.2 versus 1.6. It isn't shown in Table 1, but the interest paid per cow, at $450, was about $50 higher for the large herd group.

The final comparison looked at groups with high and low operating cost percentages. The low-cost group spent 17 cents less to generate every $1 of revenue. Logically, this group had dramatic differences in profitability versus the high-expense group- 3.1 times the NFI per cow and 3.7 times the NFI per person.

The low-cost group had more cows and more production per cow with a slightly lower calving interval and SCC.

Table 2 summarizes income and expenses for the 205 farms. The top and bottom thirds are also averaged separately.

In isolation, no single factor alone guarantees profitability. As every successful manager knows, there are many aspects of the business that must be managed and balanced daily.

In our breakdown, five of the six production factors did influence profitability. In most cases, these factors were intertwined, each one influenced by the others.

The 2001 OFMAP report can be found on the Web at www.omafra.gov.on.ca/english/busdev/downtown.htm or through the OMAFRA Contact Centre 1-877-424-1300 and OMAFRA resource centres.

This article appeared in the February 2003 Ruminations column of the Ontario Milk Producer magazine.

Source: 2001 Ontario Farm Management Analysis Project

| Top of Page |