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Profit drivers for successful grazing dairy businesses

Profit drivers for successful grazing dairy businesses

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Page 1: Profit drivers for successful grazing dairy businesses

Profit drivers for successful grazing dairy businesses

Page 2: Profit drivers for successful grazing dairy businesses

Herd size to earn the average national wage

1980 1985 1990 1995 2000 2005 2010 2015 20200

20406080

100120140160180200

Average

Year

No

of

cow

s

Page 3: Profit drivers for successful grazing dairy businesses

Herd size to earn the average national wage

1980 1985 1990 1995 2000 2005 2010 2015 20200

20406080

100120140160180200

AverageTop thirdPossible

Year

No

of

cow

s

Skill before scale!It is important to know the

drivers of profit of your business

Page 4: Profit drivers for successful grazing dairy businesses

“If you don’t like change, you’ll like irrelevance even less!”

Gen. Eric Shinseki

Page 5: Profit drivers for successful grazing dairy businesses

Get the priorities rightFine tuning

80% of potential gain made by

getting the system right

System

Page 6: Profit drivers for successful grazing dairy businesses

Too many people get it wrong

Finetuning

System

Page 7: Profit drivers for successful grazing dairy businesses

No increase in productivity with a 100% increase in inputs

Page 8: Profit drivers for successful grazing dairy businesses

Operating surplus has not increased in line with revenue

Page 9: Profit drivers for successful grazing dairy businesses

What drives profit?

Page 10: Profit drivers for successful grazing dairy businesses

What drives profit?• Milk price• Milk yield/cow• Milk yield/ha• Feed price• Milk to feed price ratio• Cost of production

– Variable cost– Fixed cost

Page 11: Profit drivers for successful grazing dairy businesses

Greater milk price increases profit

25.0 30.0 35.0-2500

-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = 48.3515728708254 x − 1337.81020934238R² = 0.0391067728024164

Milk price, p/L

Ne

t m

arg

in,

£/h

a

Page 12: Profit drivers for successful grazing dairy businesses

What drives profit?• Milk price• Milk yield/cow• Milk yield/ha• Feed price• Milk to feed price ratio• Cost of production

– Variable cost– Fixed cost

Page 13: Profit drivers for successful grazing dairy businesses

No relationship between milk yield/cow and profit

3000 4000 5000 6000 7000 8000 9000-2500

-2000

-1500

-1000

-500

0

500

1000

1500

Milk yield, L/cow

Ne

t m

arg

in,

£/h

a

P = 0.92

Milk yield/cow is an output of a system, not a driver of a successful dairy system!

Page 14: Profit drivers for successful grazing dairy businesses

What drives profit?• Milk price• Milk yield/cow• Milk yield/ha• Feed price• Milk to feed price ratio• Cost of production

– Variable cost– Fixed cost

Page 15: Profit drivers for successful grazing dairy businesses

Increased profit with milk yield/ha (?)

5000 10000 15000 20000-2500

-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = 0.0422131207956796 x − 400.379339542199R² = 0.0549261468124552

Milk yield, L/ha

Ne

t m

arg

in,

£/h

a

Page 16: Profit drivers for successful grazing dairy businesses

Profit increases with stocking rate

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = 277.955449179605 x − 386.615954304277R² = 0.0820284982031116

Stocking rate, cows/ha

Ne

t m

arg

in,

£/h

a

Page 17: Profit drivers for successful grazing dairy businesses

What drives profit?• Milk price• Milk yield/cow• Milk yield/ha• Feed price• Milk to feed price ratio• Cost of production

– Variable cost– Fixed cost

Page 18: Profit drivers for successful grazing dairy businesses

Feed price not related to profit

150 200 250 300 350 400 450 500-2500

-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = − 0.782805241975192 x + 294.805813237885R² = 0.00677972870180199

Feed price, £/t

Ne

t m

arg

in,

£/h

a

Page 19: Profit drivers for successful grazing dairy businesses

What drives profit?• Milk price• Milk yield/cow• Milk yield/ha• Feed price• Milk to feed price ratio• Cost of production

– Variable cost– Fixed cost

Page 20: Profit drivers for successful grazing dairy businesses

As Milk-feed price ratio increases, profit increases

0.0 0.5 1.0 1.5 2.0-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = 885.790528484989 x − 791.863721468584R² = 0.0944023189667991

Milk-feed price ratio

Ne

t m

arg

in,

£/h

a

Page 21: Profit drivers for successful grazing dairy businesses

What drives profit?• Milk price• Milk yield/cow• Milk yield/ha• Feed price• Milk to feed price ratio• Cost of production

– Variable cost– Fixed cost

Page 22: Profit drivers for successful grazing dairy businesses

Production cost/L strongly related to profit/ha

20 25 30 35 40 45 50-2500

-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = − 99.2983492585733 x + 3172.34988639976R² = 0.795941425511608

Total production cost, p/L

Ne

t m

arg

in,

£/h

a

Page 23: Profit drivers for successful grazing dairy businesses

Both variable and fixed costs tied to profit

2 4 6 8 10 12 14 16 18 20 22-2500

-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = − 139.938794219983 x + 1763.41571788743R² = 0.434365384149089

Variable production cost, p/L

Ne

t m

arg

in,

£/h

a

5 10 15 20 25 30 35-2500

-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = − 92.5945012789122 x + 1533.39208663645R² = 0.402793431994463

Fixed cost, p/L

Ne

t m

arg

in,

£/h

a

Page 24: Profit drivers for successful grazing dairy businesses

Production costs drive profit/ha

2011-12 $6.69/kg2010-11 $7.36/kg

2009-10 $6.16/kg2008-09 $5.21/kg

Page 25: Profit drivers for successful grazing dairy businesses

Financial performance

Page 26: Profit drivers for successful grazing dairy businesses

Where does the money go?

Feed

Forage

Vet, med, & AI

Livestock sundries

Labour

Machinery & power

Forage machinery

Property

Overheads

14%

4%

24%

5%

4%

5%

11%17%

10%

6%

Herd Replacement

Page 27: Profit drivers for successful grazing dairy businesses

The more pasture in the diet, the lower the cost of milk production

0 20 40 60 80 1000.00

0.05

0.10

0.15

0.20

0.25

0.30

Percentage of grazed grass in diet, %

Prod

uctio

n co

st, £

/L US traditional Dk GerUK NL

Fr

Ire

AusNZ

Page 28: Profit drivers for successful grazing dairy businesses

The more pasture in the diet, the lower the cost of milk production

0 20 40 60 80 1000.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35f(x) = − 0.0040806137359961 x + 0.448750608865075R² = 0.973317433932874

f(x) = − 0.000629428292206206 x + 0.281902333251893R² = 0.977214094340482

Percentage of grazed grass in diet, %

Prod

uctio

n co

st, £

/L US traditional Dk GerUK NL

Fr

Ire

AusNZ

For every 10% increase in the percent of grazed grass in the diet, Production costs decrease 0.6p/L

For every 10% increase in the percent of grazed grass in the diet, Production costs decrease 4p/L

Page 29: Profit drivers for successful grazing dairy businesses

Production costs decline with increased milk from forage in UK

500 1000 1500 2000 2500 3000 3500 4000 450015.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

f(x) = − 0.00276136276783452 x + 37.7623658393038R² = 0.194527940822812

Milk from forage, L/cow per yr

To

tal

pro

du

cti

on

co

st,

p

/L

For every 1,000 L milk produced from forage,

production costs drop 2.8p

Page 30: Profit drivers for successful grazing dairy businesses

Net margin increases with milk from forage in the UK

0 1000 2000 3000 4000 5000 6000-2000

-1500

-1000

-500

0

500

1000

1500

f(x) = 0.336923179189769 x − 726.465214334733R² = 0.273896680721701

Milk from forage, L/cow per yr

Ne

t m

arg

in,

£/h

a Every 1000 L milk from forage is worth £340/ha

Page 31: Profit drivers for successful grazing dairy businesses

Same in Ireland

R2 = 0.42

0

500

1000

1500

2000

2500

3000

3500

4000

0 2 4 6 8 10 12 14 16

Estimated Grass utilisation t DM/ha

Net

pro

fit

(€/h

a) Every additional t DM/ha is worth €161/ha

Page 32: Profit drivers for successful grazing dairy businesses

Profit drivers in successful dairy businesses

– Milk yield/cow is not a driver of profit– Focus on cost/kg milk or cost/kg MS– Costs decline with increased pasture in diet– Profit increases as milk from pasture increases– Grow and utilise as much pasture as possible

Page 33: Profit drivers for successful grazing dairy businesses