Ways to live with narrower dairy profit margins

The gradual implementation of trade deals is expected to squeeze growth on dairy farmers as expenses increase

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Dairy producers haven’t yet felt the implications of recent trade deals, but they will soon.

“These deals have really not affected [the dairy producers] at all,” says Jack Rodenburg, with DairyLogix. But, he says producers will feel the impact this year and then the market will be affected, especially from 2020 to 2025.

Rodenburg spoke at the recent South Western Ontario Dairy Symposium on the cumulative effects of the Comprehensive Economic and Trade Agreement (CETA), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Canada-United States- Mexico Agreement (CUSMA)

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Why it matters: With recent trade deals combined with changes in the food guide and consumer perceptions, changes in the dairy market could limit growth for Ontario dairy farmers.

The biggest impact on the dairy industry from the trade deals will be minimal growth, not significantly lower farm-gate prices. Rising cost of production will also be a challenge.

There is an estimated continued growth in consumer demand — two to three per cent each year — from a growth in the population, but Rodenburg says dairy producers have already lost ground with consumers.

Rodenburg had three areas dairy farmers can examine in order to improve their financial bottom lines.

Do what you do better

Rodenburg says he hears a lot farmers say, “I can save $3,000 by going off of DHI — I barely look at the records anyway because I have all the information from my robots.” That may be true, but there’s significant value in benchmarking and understanding industry-wide productivity.

Each year Zoetis completes a study in the Northeastern United States where 90 different production variables are measured.

Within the study it’s clear that milking older cows leads to more profitability as they produce more milk per cow. The older cows stay around longer, so long as they continue to get pregnant, don’t get mastitis and don’t die. When the older cows are around longer, the overall milk production for the herd increases.

Feed is the biggest direct expense item on a dairy farm. To help manage this cost it’s important to focus on forage quality through the stages of harvest, ensiling and feeding.

“A dairy cow is well fed when there is five per cent of feed left over,” says Rodenburg.

Allowing cows to clean up the manger doesn’t ensure they are getting the highest dry matter intake, which is critical to high milk production.

In hot weather fresh feed spoils faster, so it’s better to feed in the afternoon during the summer months when cows want to eat and there’s a slower process of spoilage.

Cut out unprofitable areas

Heifer management and breeding are two areas where unnecessary money is lost or opportunities to make extra money are missed.

Sexed semen has changed the equation. Rodenburg says that means more calculation needed to figure out how many heifers are needed, so that only the amount needed are bred.

Breeding the rest of the animals to beef sires increases the value of calves sold at two weeks of age, will increase pregnancy rates, should mean healthier cross-bred calves at birth and can also improve calving ease.

If time is money

The Ontario Dairy Farm Accounting Project (ODFAP) completed in 2017 showed the labour required to manage a dairy operation averages 74 minutes to produce one hectolitre of milk.

From a cost-of-production formula created by Dairy Farmers of Canada, the average farm manager should be paid $45.25 per hour.

To produce one hectolitre of milk using 74 minutes of labour at $45.25 per hour, the labour is worth $55.81 per hectolitre — meaning labour quickly accounts for the biggest input cost in producing milk.

Poor profit farms compared to high profit farms on average require three times the amount of time to produce one hectolitre of milk, says Rodenburg, meaning their labour costs are three times higher than that of higher producing farms.

“If this labour can actually be counted at some fair market value and if it is the biggest and also the most variable input costs on our farms, then it follows that improving labour efficiency is our best opportunity to improve profitability,” says Rodenburg.

From the ODFAP, on average, smaller herd sizes and tie stall operations averaged more labour per hectolitre of milk produced and overall labour efficiency of freestall barns is better.

“The weakness is the reality that labour savings only improve profits if the labour saved is applied to other profitable pursuits,” says Rodenburg.

Having a family member find an off-farm job until transfer or expansion, making better use of equipment with custom work, or raising different livestock for other opportunities are options for using free time from labour savings.

About the author

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Jennifer Glenney

Jennifer is a farm reporter who lives in Cayuga, Ontario.

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