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Recent studies deflate impact of milk price on profitability

“It’s attention to detail, it’s excellent cow comfort, it’s good animal husbandry, it’s quality heifer programs, it’s good financial management. There’s no magic solution.” 
-Mike Hosterman on profitability in the dairy industry

Instead of milk prices, Mike Hosterman, AgChoice Farm Credit agricultural business consultant, says that producers should focus on their net margin per hundredweight of milk produced to determine profitability. Using Dairy Profit Analyzer data, Hosterman found that milk price was not a significant factor in profitability among farms. Instead, lower cost of production and higher milk production were what set the top 10% of farms apart from the rest.

According to Hosterman, the top farms strike a healthy balance in these 5 areas:
  1. Volume.
  2. Efficiency.
  3. Capacity.
  4. Industry skills (i.e. ability to manage internal growth).
  5. Cost of production and cost control.

A recent study by ag economists at Kansas State University confirmed that profitability is not strongly correlated with milk price over time. The results of the study indicate that the most profitable producers have higher milk production/cow and have similar (or slightly lower) overall costs/cow. Top farms actually had  higher feed costs than less profitable farms, but they also had a lower overall cost. One of the economists, Kevin Dhuyvetter, identifies a producer’s individual management skills as vital to the survival of a business.

Click on the source link below to learn more about these studies!
 
Source: “Overcome profit obstacles” by Shannon Linderoth. Dairy Herd Management’s website: www.dairyherd.com. Retrieved December 28, 2011. 

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