Economics are based upon three basic principles: time, income over cost, and the number of units involved. How can we apply these principles to maximize economics on a dairy? We must consider how we make milk now, next year and into the future.
We will start by looking at the number of units compared with income over feed cost.
Every season, a beef rancher looks at his rangeland and determines how many cows he can feed on it. He asks himself, “do I need more land?” or, “do I need more cows?” He evaluates the nutrient needs of his herd to avoid either insufficient feed for his cattle or surplus of grass that would ultimately go to waste. No cattleman, beef or dairy, likes to throw away feed. Adjustments are made to change the number of cows per acre either by adding more cows, leasing more land, or removing cattle if there is not enough grass.
How does this apply to a dairy? One example is the milking parlor. We can compare the parlor to the beef rancher’s land: No matter how it is used, it is part of operational costs each day. If we follow correct milking procedures and can put more cows through the parlor, we will get more milk. In a Double-20 milking parlor, if we go from milking four sides per hour to 4.5 sides per hour within a 10-hour milking shift (2X), we can milk 200 more cows a day. That is a big number! Milking more cows per day may require an extra labor unit, or a crowd gate, or a different alley for cow movement, but if you know your income over feed cost, you can quickly calculate the “time” element to determine potential return on investment.
Every extra cow we milk without major farm investment generates a return based upon her cost and her milk production. Calculating average costs may look disadvantageous but adding that one cow can be very profitable. All of the farm payments and labor will be paid whether we bring this cow in or not. Then, her individual costs and profits (income over feed cost) are only the variables to profitability. As long as her income is greater than her feed cost, we make money and maximize the margins of the dairy by adding this cow. Pushing closer to the edges makes more profit for less investment.
Determining which area on the farm is limiting cow numbers determines how many cows we can economically milk. This equation only works if there is room for the animal at the feed bunk and if she has a place to lie down. We need to keep in mind that our priority is cattle care: if we take care of the cows, they take care of us. As cow managers, it is our duty to make animal welfare a priority and go beyond doing what is good for the cow. We must strive to do what is great for the cow!
The Genetic Connection to Economics
We need to focus on the animals that will create the highest income over feed cost. Pay attention to the cows with consistent production numbers that breed back on an annual basis. These cows are typically healthier, more disease-resistant, and more fertile, traits that are key to maintaining consistently high productivity and profitability. Both Herd Health Profit Dollars® (HHP$®) and Dairy Wellness Profit Index® (DWP$®) are health-focused indexes that place a heavy emphasis on mastitis resistance (HHP$ - 15% and DWP$ - 13%) and other economically important health traits. HHP$ and DWP$ can serve as useful tools for selecting animals that can achieve production while keeping feed costs under control. Additionally, focus on Sire Conception Rate (SCR) for this year’s reproduction and resulting production, and Fertility Index (FI) for future, generational improvement in fertility and profitability.