Comparison of Profitability Among Ohio Dairy Farms Based on 2013 Production

Sarah Finney, Animal Sciences Student and Maurice Eastridge, Extension Dairy Specialist, Department of Animal Sciences, The Ohio State University

Profitability of dairy farms is often considered the difference between the milk price and the cost of producing 100 lb of milk.  Obviously, some farms end up being more profitable than others with similar size and practices, so what is the difference?  Where is this extra profitability coming from?  What are the top 25% farms doing that makes them more profitable than the others?

The 2013 Holstein herd production data from Ohio Dairy Herd Improvement (DHI) records were divided into quartiles based on energy-corrected milk (ECM) production (Table 1).  Median actual (not ECM) milk yield per cow was 53, 61, 67, and 75 lb/day for quartiles 1, 2, 3, and 4, respectively.  Milk fat was 3.8% for quartiles 1, 2, and 3, and 3.7% for quartile 4, with milk protein at 3.1% for quartiles 1, 2, and 3, and 3.0% for quartile 4.  Herd size was relatively similar for the first two quartiles, with the average for all herds at 166 cows.

The income over feed costs (IOFC) were calculated for each quartile using the USDA approach of assuming a feed efficiency of 1.4 lb milk per pound of feed and the price of a 16% crude protein (CP) dairy mix based on 2013 feed prices. Farms were assumed to be feeding 37.9, 43.6, 47.9, and 53.6 lb/day of feed dry matter (DM) from the lowest to the highest quartile, respectively.  Feed cost was determined to be approximately $0.10/lb (as-fed basis, assuming 88.2% DM) based on the price of 16% CP feed.  This resulted in daily feed costs of $4.14, 4.76, 5.23, and 5.86/cow/day for quartiles 1, 2, 3, and 4, respectively. Average herd parameters, such as milk, fat, protein, and other solids production, for each quartile were entered into the Cow-Jones Index (St-Pierre, N.D. 2008. Managing measures of feed costs: Benchmarking physical and economic feed efficiency. Proceedings Tri-State Dairy Nutrition Conference. http://tristatedairy.osu.edu) to determine income over nutrient costs. 

Table 1. Holstein herds using the Dairy Herd Improvement recording system in 2013 stratified into quartiles based on energy-corrected milk (ECM) yields and calculation of income over feed costs and the Cow-Jones Index.

Based on the average prices for milk components in 2013, the milk price was $18.26/cwt for the first quartile compared to $17.89/cwt for the fourth quartile. The total nutrient costs differed by $1.78 between the top and bottom quartiles ($6.15/cwt for quartile 1 and $7.93/cwt for quartile 4). The IOFC increased $2.02/cwt of milk and the Cow-Jones Index increased $1.95/cwt when comparing quartile 1 to 4. Although the actual costs for IOFC and Cow Jones differed, the magnitudes of change from one quartile to another were similar. The increase in IOFC ranged from 8 to 15% and 9 to 24% for the Cow-Jones Index from the incremental increase in quartile of milk. Using a 100-cow herd as an example and the median milk yields in Table 1, there would be $16,217/yr additional IOFC for a herd in quartile 4 vs 1. Many factors can certainly affect the milk yield of dairy herds, but management practices and cost control are fundamental factors that affect profitability on dairy farms. Increasing milk yield, while managing cost control, is key to diluting maintenance costs (thus increasing efficiency of output) and increasing profitability of dairy farms.