1 July 2013

4 minute read

Organised by Lillico Attlee, one of the UK’s largest privately-owned agricultural merchants and the Evidence Based Veterinary Consultancy, the Penrith-based independent veterinary consultancy, with key sponsorship from Elanco and Zinpro, the 2013 Large Herd Seminar was addressed by a number of eminent dairy industry specialists and producers from around the world. The event and attracted an audience of 400 dairy farmers, agricultural supply trade professionals, veterinary surgeons and academics.

One of the keynote speakers was Dr John Fetrow, V.M.D, MBA Professor of Dairy Production Medicine at the University of Minnesota, who has a global reputation in the dairy industry. He stated:

“The highest rate of profit is made at the margin, at the last bit of production, the last animal tended to, the final productive input. A farm’s financial averages are made up of the outcome of a series of marginal decisions. The aggregate is the sum of a series of increments.

“Dairy producers tend to think about farm financial performance in terms of ‘cost per litre produced’,” added Dr Fetrow. “Many accept that the milk price is a given per litre. They think that making money depends on keeping total expenses per litre as small as possible, thus increasing the difference between income and expense. Generally, they focus on feed, since it is overwhelmingly the largest expense category on any dairy unit. I have a slightly different way of looking at the situation.

“Making money on a dairy depends, firstly, on making sure that the barn is full of cows. Secondly, each cow in the barn must be as financially productive as possible. Success in the dairy sector is all about the profit, yet many dairymen see it in terms of cutting expenses. While cost control is critically important to profitability, any action based solely on that approach is doomed to failure.

“The solution to financial survival is found on the revenue side, with appropriate attention to prudent control of costs which do not contribute to production. Increasing overall profitability depends on increasing the profit margin per litre and the number of litres produced. When dairy farmers consider how to increase margin per litre many look to cut expenses, but if not done carefully this will reduce both production and income. Very often, the revenue lost significantly exceeds the expense saved.

“An alternative strategy is to do the opposite - increase expenses and production. To do that we need to know the value of additional milk production from an existing cow. When looking at revenue per cow it is important not to use the average feed cost to estimate this because it includes maintenance, but instead use the marginal feed cost. Average feed cost per tonne has little to do with the efficiency of feeding program management, which has everything to do with level of production.

“The single best measure of financial efficiency is ‘income over feed cost per milking cow per day’. Feeding cows in groups based on their production is common practice in large dairies and intended to save money on feed for those cows making less milk. When it comes to feeding, balancing energy for production is probably the single most financially destructive philosophy ever inflicted on the dairy industry. Expected feed cost savings can be wiped out if production falls by even a small amount, as little as 1.6 litres per cow per day. So while moving cows from a high group to a low group might, for example, save £47 per cow in annual feed cost it might result in a reduction of £108 in milk revenue and a fall of £61 in annual profit.

“Quality forages are the key to a profitable feeding program and no nutritional wizard can completely overcome the impact of bad forages. Rather than focus on cutting feed costs there is probably more money to be made by controlling shrink and mixing errors, which often exceed 20%.

“It is a mistake to deliberately restrict the energy intake of milking cows and there may be value in changing protein or other nutrient densities to lower-producing cows. Producers should focus on increasing production per cow because this will dilute maintenance costs per litre and increases average margin per tonne of feed. They should also be wary of seeking cheap feeds to substitute for the ‘optimal’ ration and be prepared to measure the impact of any new feed on total production when it is introduced.”

Dr Fetrow warned against cost cutting when it comes to feed, replacements or cow care and said that producers should start by making best use of forages and balance for the best rumen-safe ration possible. In general, they should select feeds that make the most milk and pay as little as possible for them by competitive bidding, cost comparisons, volume discounts or forward contracting.

Warwick Bastard, who founded the Large Herd Seminar with Penrith-based vet Richard Vecqueray of the Evidence Based Veterinary Consultancy, stated: “The high level of financial commitment now required to develop and maintain larger herds significantly increases the demands on owners and operators in terms of the standard of management and husbandry required. It is essential that they operate effective strategies to meet the health, production and financial challenges which present when large herds enter the growth phase. This year’s Large Herd Seminar provided essential information to help them achieve that goal.”

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