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| Effective herd management and decision making requires data records. These will be used for three reasons: to check on performance, to guide future decisions and to provide planning data. Without appropriate information, it will be difficult to highlight a potential problem or judge whether a taken action has improved the performance or not. |
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When making decisions, they shall have a purpose to solve or improve something. Always ask yourself the question: What do I want to solve or achieve with this specific decision? By setting goals and then comparing them with the outcome, you will know if earlier actions need adjustments. To facilitate the co-ordination of the business, it is essential that the short-term goals work in conjunction with the long-term planning.
The record keeping shall include both physical and financial records, so that the business can be efficiently analysed. Good records have to satisfy three criteria. They should serve a definite purpose, be relatively easy to complete and be up-to-date, so that any action needed can be taken as early as possible.
To get a quick view of the situation in the dairy herd and the herd management portion of the farm business, there are a number of physical parameters to monitor and evaluate simultaneously. All of these are indirectly related to the profitability of the production, but the optimum level of each parameter depends on regulations, prices, cost of labour, taxes, climate etc. The final targets will therefore vary from farm to farm and the following should be considered as a guideline rather than specific recommendations.
• Milk yield - The average production per cow per year is a reasonable parameter to estimate the production level of the herd. Most milk recording organisations report this as the production during the first 305 days of the lactation. Consequently, this figure does not reflect herds with poor reproduction or extended calving intervals. It also does not accurately reflect the amount of milk sold per cow per year, which is the true indicator of gross income. It is therefore recommended to record all cows individually, on a regular basis. Production levels above 8 000 kg per cow per year are common today, but levels as high as 12.15 000 kg or more are also reported.
• Calving interval - This indicates the net result of all reproduction decisions. Historically, a goal for calving interval has been 365 days. This is being challenged and extended by many producers and it is not uncommon to see goals for calving intervals extending beyond 400 days. However, without a lactation modifying compound (e.g. bovine somatotropin), calving intervals much beyond 400 days would generally not be advisable. The primary problem with a long calving interval is associated with the fact that cows continually drop in production after approximately two months in milk.
Another problem is that you never know the shape of a particular cow.s lactation curve in advance, as it changes from lactation to lactation. This, together with the fact that the time between a taken breeding action and the result of it is very long, increases the risk. For example, if you decide to extend the calving interval, you will not see the result of that decision until 280 days after conception. If you then realise that it was a bad decision, it is too late to compensate for a costly production loss. Longer calving intervals generally result in lower milk production and higher total feed costs per unit of milk produced.
• Culling rate - This measures the rate at which cows are removed from the herd. Only animals that are for non-dairy purposes should be included and not those being sold to other farms. You will generally find cull rates between 25 and 35%. Herds that raise every calf, have a good heifer programme and do not plan to expand, may cull near the 40% level to keep from increasing herd size. It is debatable if this is a good policy, due to the fact that it might be more profitable to sell some of those animals to other dairy farms. Low culling rates may result in keeping too many problem cows, which affects the overall profitability.
• Fat and protein - When looking at milk composition, the content of fat and protein is important. Depending on the area and type of cattle, fat percentages ranges from 3.9 to 5.5% and protein percentages can be above 3.6%. Low fat percentages are often associated with low fibre diets and low protein percentages are generally associated with low soluble carbohydrates diets. Herds that are excessively low in fat percentage may suffer some herd health problems associated with overfeeding of concentrates.
• Somatic cell count and bacteria count - These are other indicators of milk quality. Bacteria in milk generally are a result of poor hygiene or poor cooling and should be as low as possible (Bactoscan < 100 000). The somatic cell count reflects udder health and higher somatic cell counts indicate increased mastitis. Herds with mastitis under control will have a bulk tank somatic cell count below 100 000 cells/ml.
• Heifer age - Home-reared heifers should enter the farm with proper size and growth with a minimum cost. Heifers that calve too young will have lower milk production. Heifers that calve too old cost much more to raise. Generally, farms should strive for 24.26 months average age at first calving.
• Use of concentrates - This can be used to calculate the concentrate to milk ratio, which is an indicator of how efficiently concentrates are being used. Factors that affect this ratio are: forage quality, feed waste, level of over/underfeeding, milk production level and size of animals. It is typical to observe concentrate to milk ratios of 0.15 to 0.25. A concentrate to milk ratio of 0.2 indicates that 1 kg of concentrate is fed for each 5 kg of milk.
• Labour records - Labour usage for milking, feeding, management, heat detection etc. may be used partly to check efficiency by comparing the labour used for various jobs with standards and practices. More importantly, it is extremely valuable when planning changes and evaluating potential investments. The total labour usage per cow and year normally ranges between 25 to 35 hours, with the latter figure indicating a smaller herd.
• Diseases and health disturbances - These should be individually recorded for each animal in the dairy herd. Examples of events to record are: clinical and subclinical mastitis, milk fever, ketosis, lameness, acidosis etc. This information can then be used to make breeding or culling decisions. It is also useful when analysing the cost of production and treatment.
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The underlying factor controlling the viability of a dairy herd is the economic strength of the business. Businesses that have very good cow management may have poor business management that inhibits their ability to invest further in the farm. Conversely, farms with poor cow management may have their business organised such that investment into the farm is possible. |
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A major reason for keeping financial records, if not compulsory for taxation, is in order to provide information regarding the profitability of the dairy operation. This enables you to carry out analysis and to reveal economic strengths and weaknesses. It also provides necessary data to help in the preparation of revised plans and budgets. The information is normally presented in the form of a profit and loss account and a balance sheet. To produce these for a specific time period (e.g. a financial year . 12 month period) the following three records need to be kept:
• Cash analysis book - This provides a record of all receipts and expenses and should be set up in such a way that it is possible to allocate as much as possible to a specific enterprise.
• Statement of debtors and creditors - It is necessary to keep a list of those who owe money and those to whom money is owed, together with the amounts and items for which the money is owed. If these sums relate to sales and purchases made during the actual financial year, they must be included in the profit and loss account. If they relate to the previous or coming financial year, they should be excluded.
• Valuations - Revenue and expenditure do not give the complete picture of the value of production and inputs during the year, even after adjustments for debtors and creditors. What also has to be taken into account is the amount and value of inputs (feed, fertiliser, chemicals, medicine etc.) and outputs (grain, livestock etc.) in storage. For example, if the value of fertiliser in storage at the end of the year exceeds that at the beginning, then the value of the fertiliser used during the year has been less than the expenditure upon it, and vice versa. These changes therefore have to be included in the profit and loss account and the assets in storage must be included in the balance sheet. The next level of financial records are directly related to the production. These are needed for evaluation and analysis of a specific enterprise (see Gross Margin Analysis below). Examples of useful records are:
• Enterprise outputs - The financial output of each enterprise are important to record as they are major determinants of profitability. Variations in them from year to year are largely responsible for annual changes in total farm profit. These outputs are also an essential part of the calculation of gross margins.
• Enterprise variable costs - The most important variable costs to record on a dairy farm are concentrate feedstuffs, as these have a considerable impact on the profitability. Other costs of interest to record are: purchased feed (excluding concentrates), fertiliser, sprays, seed and other miscellaneous livestock variable costs (bedding, medicine, veterinary etc.).
• Labour costs - Labour costs per enterprise, especially for arable farming, are generally relatively time demanding to record. However, in dairy farming it is easier to keep labour cost records and it is therefore recommendable.
• Machinery costs - If a close follow-up of a particular machine is desired, it is recommended to keep records of depreciation, repairs and fuel associated with the machine.
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Account analysis
A dairy farm.s overall performance can be measured by using a number of economic rations. The information for calculating these are taken from the profit and loss account and the balance sheet. The most common rations are:
• Profitability - Personal objectives will play a part both in the way profitability is expressed and the level which is considered sufficient. However, in the long run, herds must be profitable to stay in business. Common measures for overall profitability are management and investment income (MII) and net farm income (NFI). MII represents the reward to management and the return on capital invested in the farm. NFI is MII minus the estimate for unpaid labour.
• Equity - This indicates the long-term stability of the business and is usually measured as a percentage (Percentage Equity = (Owner.s Net Capital / Total Value of Assets) x 100). Maintaining a relatively high equity is necessary to be able to withstand periods when losses are made.
• Liquidity - A business possibility to meet its immediate commitments (pay bills etc.) is dependent on the amount of cash available. This is measured by the liquidity ratio, which is the ratio of liquid assets (e.g. cash) to current liabilities and should preferably be 1:1.
Gross margin analysis
As a complement to a whole farm analysis, and to get a better view of the profitability of a particular enterprise, gross margin analysis can be used. In the example below, we take a closer look on the milk production enterprise. The main revenue and cost items, taken from the financial records, for checking the profitability of a dairy enterprise are as follows (per cow):
1. Value of produced milk (sales plus used on farm)
2. Value of culls
3. Value of replacements
4. Value of calves (sold and retained)
5. Cost of concentrate food
6. Cost of other purchased feedstuffs
7. Other variable costs (excluding forage)
8. Forage variable costs
9. Labour costs
10. Annual building costs
There are obviously other costs involved, but these are the most significant. In some cases or periods, it might be relevant to add e.g. conservation costs. However, the cost of recording always has to be compared to the value of the information. When evaluating the enterprise, begin with calculating the following rations from the revenues and costs stated above:
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• Margin over concentrates per cow
• Margin over purchased feed
• Output less concentrates per cow
• Gross Margin per cow |
= 1 - 5
= 1 - (5+6)
= (1+2+4) - (3+5)
= (1+2+4) - (3+5+6+7+8) |
These measures can then be compared to previous years and other dairy farms. By doing so, it is possible to identify strong and weak points within the enterprise.
As an example, a further investigation of the value of milk production can be done. This will involve calculating the two items from which the figure is derived: milk yield per cow and price per litre. The former of these can then be analysed according to the lactation yield and average calving interval and the latter by measuring seasonality, milk quality and other bonuses. A similar procedure can be carried out for each of the revenues and costs of interest.
As a complement to the records in the table below, a number of targets have been included. These serve as an example and may have to be revised from case to case. However, to set and strive to achieve targets is usually an effective way of improving performance. By frequent recording and reporting of actual results, most people.s .competitive instinct. will inspire to better efforts, performance etc.
The table is also available for download in a larger version as a PDF-file: "Example of farm records and potential targets" (43kB).
NB: You need Adobe Reader to open the file. If you do not already have that on your computer, please click here: Adobe Reader - Download (opens in a new window).
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