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1
Better business decisions start here
A Benchmarking Tool
That Allows More Effective Decisions
W.J. (Bill) Grexton
Manager, Herd Management Services, CanWest DHI
660 Speedvale Ave W, Guelph, N1K 1E5
(519) 824-2320 ext 254;
Email: [email protected]
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Better business decisions start here
The Question…
In light of the current economic & quota situation…
How can a dairyman know how they compare against other progressive dairymen? From both a production, labor and financial perspective Need to know issues with each enterprise
That is Profit Profiler’s role…
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Why Do It?
Dairyman needs to know their costs in this economic environment
Dairymen should know how they are doing compared to other dairies (for survival)
Very few options to find true costs by enterprise
Impact of making changes is tremendous 100 cow herd = $700,000 + revenue 5% change = $35,000 Range between dairies = 25-50%
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Basic Principles of Program
To Benchmark Key Measures and Answer Questions
Goal: To show strengths and opportunities for improvement
• What is my cost per acre to grow forages?
• What are ALL my cow costs – including home grown feed and labor?
• What is cost to raise a heifer?
• What is my labor efficiency compared to others?
• If I make a change, what will the impact be?
+ +
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Better business decisions start here
Combines financial and physical information to provide benchmark results To link cow, crop & labor performance to financial
values
Basic Principles
Subdivides expenses into 4 enterprises to find efficiencies within the dairy business (forages, grains, cows, heifers) Need to know what each enterprise contributes to overall
profit Calculates a true cost of “home grown feeds”
Compare to & rank against other similar dairy businesses
Uses their own costs to project “What If” scenarios
Advisor assistance to help collect info and discuss results
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Reports – 3 Viewpoints
Business to Business
Enterprise Cost of Prod’n
Prod’n & Investment Values
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What Do You Measure?
$ / Cow $850
HolsteinHolstein Jersey Holstein (3.7:3.4) Jersey Holstein (3.7:3.4)
$ / HL $8.99 $11.44 $9.25
$ / kg Fat $2.30 $2.18 $2.50
$ / Milk Rev $ .124 $ .125 $ .126
$725 $875
Purch. Feed CostPurch. Feed Cost
9,455 (3.8:3.2) 6,340 (5.25:3.7) 9,455 (3.7:3.4)
$.727 /L; $19.13 /kg $.908 /L; $17.46 /kg $.733 /L; $19.81/kg
- Ontario pricing
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Report Outline
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What Issues do you see?
Cost /
First – Look at the Whole Business
Evaluating the business…
Return Over Cost /
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Forage Costs
Next, Look at the 4 Enterprises
Evaluating the Enterprises…
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How do they go together?
Evaluating the Enterprises…
Less / heifer + more total = extra animals or lower revenue
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Top 10 in $ /Acre
But Poor Yield
= Higher Cost /Cow
Comparing Physical Parameters
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Heifers calving later and giving
less milk
Comparing Physical Parameters
25% less cows and 33% less
components sold = 40% less
revenue
Less investment = further to go to bring facilities up to standard
Finally: Total Cost / $1 of Revenue = $.95 (compared to avg of $.78) puts this herd in bottom quartile – and with very little hope
of expandingWhat Options do they
have?
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What If?
Looking at $ effect of change in…
Production
Reproduction
Udder Health
Replacements
Cost of
Production
Use multiple times with
various options to
find best plan of action
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Looking at Possibilities
With management
changes…there is Hope!
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The Process…
Financial StatementsProduction InformationCropping Information
Labor Information + Advisor Assistance
Better Decisions
Useful Benchmarks
Increased Profits
+ “What If” Options
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Some Results from Profit Profiler
The information is from 135 dairies who supplied data with 2008 - 2011 year ends
Must have 20 herds to make a group. If not 20 available, then criteria expands until 20
Some comparisons combine 2 + years
Dairies who use the program can have their data compared to any group available – multiple comparisons
Currently there are >15 groups to compare against. As more people use the program, we will be able to see differences between different management styles
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Summary of Costs
2010-11 (39 Herds)
25-90th PCTL
Total Cow Costs 54.7% 45 - 62%
Cow Feed 24.8% 18 - 29%Labor 7.8% 4.5 - 8.7%Heifer Cost 11.5% 8 - 13% (expressed as % of Milk revenue)
Cost / heifer / yr $910 $626 - $1014
Forage Cost / Acre $446 $297 - $546
Milk Revenue /person $451,695 $289,682 - $735,519
Cost to make $1.00 $.791 $.66 - $.85
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Better business decisions start here
Summary of Costs
2010-11 (39 Herds)
25-90th PCTL
Total Cow Costs 54.7% 45 - 62%
Cow Feed 24.8% 18 - 29%Labor 7.8% 4.5 - 8.7%Heifer Cost 11.5% 8 - 13% (expressed as % of Milk revenue)
Cost / heifer / yr $910 $626 - $1014
Forage Cost / Acre $446 $297 - $546
Cost to make $1.00 $.791 $.66 - $.85
$78,970 Diff$30,230 Diff
$35,700 Diff
$44,820 Diff
$122,050 Diff
$153,975 Diff
Based on 100 cows
How Valuable is
“Average” when making
plans?
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Better business decisions start here
Cost to make $1.00 $. 782 $.847
Milk Revenue /person $480,782 $280,465
Total Investment /cow $33,958 $23,181
Total Debt / kg Fat $50.88 $43.50
Comparison by Milk Prod’n 2010-11
# Cows
Avg Milk Sold/Cow
98
8,123
Low (20 Herds)
219
10,842
High (21 Herds)
Net Farm Income $414,992 vs $101,263
per 100 cows $189,494 vs $103,329
Total Cow Costs
Cow Feed Cost
Heifer Costs
54.6% 59.7%
25.6% 27.3%
11.1% 11.7%
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View of Costs by Prod’n Level
The potential to help clients improve is amazing!
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Summary
High Prod’n herds sold 2,600+ more kg Milk /Cow High Prod’n herds sold 9,400 more kg Fat /Person High Prod’n herds produced Fat @ $ .37 lower forage
cost and $ .52 lower cost overall High Prod’n Herds had a $ .07 less cost per $1.00 of
total revenue High Prod’n Herds had 5.73% return on investment vs
4.25% for Low Prod’n herds ($4.80 vs $3.22 / kg) Low Prod’n herds had lower cost /yr and total to raise
heifers with similar results (%). However total 1st lact milk Prodn’ was still significantly lower
There is still a wide range in profitability within each group
- Cow cost = +/- 3.8% & 5.4% from avg (high:low)
- Cost / $1 = +/- 5.3% & 6.3% from avg
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Cost to make $1.00 $. 686 $.966
Milk Revenue /person $464,363 $266,210
Total Investment /cow $27,274 $33,710
Total Debt / kg Fat $36.82 $56.57
Comparison by Cost 2010-11
# Cows
Avg Milk Sold/Cow
98
9,037
High (20 Herds)
226
9,568
Low (21 Herds)
Net Farm Income $591,999 vs $28,054
per 100 cows $261,946 vs $28,627
Total Cow Costs
Cow Feed Cost
Heifer Costs
49.7% 66.1%
21.7% 28.9%
9.4% 13.9%
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Cost Summary
Every measure for High Cost Herds was worse than Highly Efficient herds – except…
Invol Cull Rate was lower but this may have been because of longer Age @ 1st Calving
Low Cost Herds had an overall greater return to ownership / investment – 10.2% vs 3.3% ROI
Profit difference of $591,999 vs $28,627 does not even cover principle payments for poor herds ($1.9 M debt)
There is a narrower range in profitability within top group compared to other comparisons = ??
- Cow cost = +/- 2.9% & 4.1% from avg (low: high)
- Cost / $1 = +/- 2.8% & 4.0% from avg
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Take Home Message…
Range between dairymen shows potential that is available for improved profit. (50+% of avg)
Home Grown Feed costs - significant % of Costs
Feed Costs are ~50% of total “Milk Cow” cost
Labor is next greatest cost – must make it pay
Good Management = More profit!
Using AVERAGE costs when planning changes is not a reliable measure – too much variation
YOU NEED TO HAVE AN ACCURATE COST OF PRODUCTION FOR YOUR BUSINESS!
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Who Should Use it?
Someone who is planning to make changes Someone who plans to be in the business
longer than 5 years Someone who wants to know where they
rank
They must be… Willing to allocate expenses Willing to “thoughtfully” provide data Dairy owner or manager Must sign Agreement of Use Must be willing to pay for service…
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How Does it Work?
Contact a certified advisor All data must be checked by a certified advisor –
for assistance and accuracy
Gather your information Profit & Loss Statement, Balance Sheet, Milk Board
statements, production, cropping and labor information
Make an appointment to fill out input form with advisor
Once processed, results will be explained
Log onto web program to do unlimited comparisons and “What If’s”
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What Value is it to the Dairyman?
Seeing enterprises costs allows more informed management decisions Can now understand why certain enterprises may
need to be reduced and outside purchases made
Reports show results in ways that are not normally expected – which allows a better evaluation Eg: Milk Produced vs Milk Sold /cow – identifies
costs associated with long lactations
Eg: Labor measures allow you to compare cost and efficiency of labor force (2nd greatest cost)
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Better business decisions start here
What Value is it to the Dairyman?
Can see the operation from both financial and production viewpoint - Short & concise - only key items are shown
Having the overall business broken down into smaller “pieces” can help identify each enterprises strengths and opportunities to improve
Knowing where others are doing a much better job allows you to focus on what to work on 1st
Use of the “What if” allows you to see which option give the best outcome
Enhances communication with lender
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Better business decisions start here
Advisor Involvement
Each herd must be “vetted” by a certified advisor All data must be checked accuracy Offers assistance to producer in collecting info
Provides value added option to advisors In addition to existing service package Better understanding of dairy business
To be certified – training and licensing ($250 /person /yr)
Reduction in cost to advisor for “time”
Web based for convenience
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Comments?
2. How can you see this fitting into your business model?
a) Promote it and DHI will work with dairyman
b) Collect data and DHI gets results to dairyman
c) Part of your client service package
d) Variation of above…
1.Do you think this is something that could be used to assist your dairy clients/
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Better business decisions start here
Website Accessible
Details on website…
www.profitprofiler.ca
or
contact
Thank you! Ph: (800) 549-4373 Ext 254 .
Fx: (519) 824-1330 [email protected]