the economics of dairying -...
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![Page 1: The Economics of Dairying - inform.molevalleyfarmers.netinform.molevalleyfarmers.net/wp-content/uploads/2017/11/Matthew... · The Economics of Dairying Insights into the ... United](https://reader034.vdocuments.mx/reader034/viewer/2022051723/5ab700f07f8b9ab47e8e7e25/html5/thumbnails/1.jpg)
The Economics of DairyingInsights into the Global Market
November 7 – 9, 2017Matthew Lange, Dairy Business Consultant
Compeer Financial Dairy Consulting Team
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Activity in U.S.• Volatility increasing over last 15
years.• Story behind the story
• Gains from increases in prices are limited by greater decreases in prices.
• Heightened risk of unrecoverable losses.
• Hyper-consolidation.-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
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U.S. Dairy Cattle PerformancePerformance 2013 2014 2015 2016 1H 2017Milk Shipped/Lact. Cow/Day 37.06 37.06 37.45 37.19 37.28Milk Shipped/Lact. Cow/Day ECM 38.06 38.15 38.46 38.28 38.36
Base price for milk P/Litre £30.91 £38.35 £27.15 £25.53 £27.66
Marketing gain/loss -£0.14 -£2.03 £0.41 £0.33 -£0.07
Government Payments £0.12 £0.00 -£0.05 -£0.02 £0.00
Component Payments £4.45 £4.86 £3.38 £3.11 £2.83
Total Milk Price £35.34 £41.18 £30.89 £28.95 £30.50
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U.S. Cost of ProductionCOP/UK 2013 2014 2015 2016Top 25% 1H 2017Feed Cost P/Litre £21.18 £21.22 £18.25 £16.15 £16.18 £15.26
Labor Cost P/Litre £5.36 £5.93 £5.89 £5.70 £5.12 £5.76
Net Herd Replacement Cost P/Litre £2.23 £1.62 £1.77 £2.35 £2.15 £2.25
Capital Cost P/Litre £3.85 £4.09 £4.09 £4.48 £4.09 £4.43
Other Production Cost P/Litre £3.88 £4.14 £4.07 £3.90 £3.85 £3.50
Overhead Cost P/Litre £11.61 £12.83 £11.96 £11.25 £10.53 £6.22
Less Other Inc. P/Litre -£15.33 -£15.58 -£14.93 -£13.57 -£13.83 -£7.37
Whole Business P/Litre £32.80 £34.24 £31.10 £30.27 £28.11 £30.03
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U.S. Financial Performance RatiosRatios 2013 2014 2015 20161H 2017Net Profit / Litre £2.58 £6.68 -£0.19 -£1.27 -£0.45Net Profit / Cow £313.26 £832.18 -£24.53 -£157.98 -£50.07Return on Equity 7.00% 18.80% -0.70% -4.30% -----Owners Equity 52% 57 56 52 -----Working Capital / Cow £637.50 £965.25 £617.25 £303.00 -----Capital Debt Repayment Capacity 151% 253% 91% 61% -----Debt Revenue Ratio 0.62 0.55 0.66 0.81 -----
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“In times of turbulence the biggest danger is to act with yesterday’s logic.”
- Peter Drucker
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Six Degrees of Separation1. Somatic Cell Counts
• Top third most profitable herds had 196,000 cells/mL while lowest third of profitable herds at SCC of 239,000 cells.
2. Energy-Corrected Milk• Spread between 91lb/cow/day of energy corrected milk versus 72lb/cow/day
for high and low herds, this equates to nearly $1.14/cwt. in more profit.
3. Death Losses• Top 1/3 of herds with lowest death loss were $.86/cwt. more profitable than
lowest 1/3. Target is 4%-5% death loss or better.
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Six Degrees of Separation4. Net-Herd Replacement Cost
• NHRC = (# of cows removed from herd * replacement value) – cull value.• Lower culling decreases NHRC loss and increase milk production.
5. Preg. Rates• Great profit with greater preg rates in the neighborhood of $50
more/cow/year.
6. Heifer Survival
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Lifetime Value Depends on LongevityProfitability is driven by healthy and genetically capable cows living into the prime of their life, generally 3rd through 5th lactation.
Source: Zoetis
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Raising the Right ReplacementsOn average, heifers should have greater genetic merit than cows in traits under selection, but not all heifers are better than the cows already in the herd
0
2
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Num
ber o
f Hd
NM$(G)PTA
Cows
Heifers
Heifers with NM$ GPTA below the adult herd average
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“You need cash. Cash is like oxygen. When you don’t need it, you don’t notice it. When you do need it, it’s the only thing you think about.”
- Warren Buffet
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Create Cash Management Dashboard
1. Checkbook Balance2. Operating Loan/Line
• Current Balance & Availability
3. Payables and Receivables• Total amounts and days past due.
4. Burn Rate• Projected Annual Losses / Working Capital
5. Seasonal Cash Expenses
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“The secret of success is to do the common thing uncommonly well.
- John D. Rockefeller Jr.
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3M (Margins Matter Most) - IOFC
Case A Case B
£13.40 Feed Cost P/Litre £14.78
£4.80 Feed Cost / Cow £5.74
35.80 Milk Production 38.85
£25.36 Milk Income P/Litre £27.52
£14.36 IOFC £14.38
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3M (Margins Matter Most) - IOFC
• Forage Quality • Manage for target quality • Bunker management • Minimize shrink
• Feed Refusal • How much do you
manage for? • Production grouping strategy • Percentage of herd not in the tank
Feed Ratios 2016Feed Cost/Cow/Day £4.88
Forage Cost/Cow/Day £2.28
Non-Forage Cost/Cow/Day £3.35
Milk Inc./Cow/Day £10.76
IOFC / Cow/Day £5.88
Litres Milk / Kilos DM 1.472
Cost P/ Kilo Dry Matter £16.73
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3M (Margins Matter Most) - NHRC
• Net herd replacement cost/cwt is the difference between the cost of a replacement heifer and the value of the replaced cull cow represented on a cwt milk basis.
Replacement cost $2.50/cwt. - Cull revenue of $1.10/cwt. Net herd replacement cost is $1.40/cwt.
• Increasing milk production,• Obtaining higher cull revenue, • Reducing death loss, and• Limit < 60 DIM Involuntary Culls
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Tactical Measures to Improve Margins
• Usable, Quality Financials.• Negotiate with vendors.• Maximize cash discounts.• Review ration formulations with nutritionist & consultant.• Manage labor, seek retention.
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Tactical Measures to Improve Margins
• Movement of dry cows to increase cow numbers.• Reduce excess heifer inventory beyond targets.• Look at leases vs. ownership/repair.• Discuss debt structure with lender/consultant.• Risk management, even if you have never done it or even if you been
there done that.• Maximize existing investments.
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“Capital Isn’t scarce, Vision is.”
- Sam Walton
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Contact
540 Baldwin Plaza Dr.Baldwin, WI 54002United States
@DevelopingDairy
Matthew G. LangeCompeer Financial
Dairy Consulting Team
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Questions ….
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Lunch ….