“Enhancing Dairy Farm Profits through Internal Growth”

1. Welcome! 2005 Winter Dairy Management Series: “Enhancing Dairy Farm Profits through Internal Growth”

2. “Internal Growth” encompasses many aspects of your business; we will stay on message to address the breadth: AgendaWhat’s the Internal Growth Level in your Herd? Welcome Capturing the Economic Value of Internal Growth Introduction of the Case Farm(s)Assessing, Improving and Minimizing Broken Cows Analyzing Internal Growth Components in the Case Farm How we Limit Broken Cows in the Case Farm, Mastitis & Foot Health Lunch Many Cows Break in the Transition Possible Fixes Transition Cow Management in the Case Farm Optimizing Replacement Enterprise for Profitable Internal Growth Ins & outs of the Case Farms Replacement Enterprise Farm-Specific, Goal-Driven Reproductive Management How Repro is handled on the Case Farm Where do we start? Modeling Improvements to IG and Predictable Gains Final questions & Evaluation

3. Agricultural Finance and Management at Cornell Department of Applied Economics and Management $$$ $$$ Many people across the NYS Dairy Industry had a hand in pulling this together… … the most important of whom are our Case Farms who you soon will meet. They generously opened their farms’ data for our better understanding

5. Internal Herd Growth Generating Profits through Management

6. What is Internal Herd Growth • Generating more dairy replacements than you need to maintain herd size. • Interaction of two components: • How many replacements do you need to maintain herd size? • How many replacements are you generating? • Many different areas of farm operations impact these two components.

7. How Many Replacements do You Need? • Centered in the milking herd. • How many cows have to be replaced? • Why do they have to be replaced? • Died • Mastitis • Reproduction • Low milk production • Etc. • What could be done to decrease the number that need to be replaced?

8. Economics • By requiring fewer replacements to maintain herd size, you minimize expenses associated with maintaining herd size. • If paying $1,500 per replacement with a replacement rate of 50%, you will spend $150,000 per year to maintain a 200 cow dairy. • If you can lower replacement rate to 30%, you will spend $90,000 to maintain same 200 cow dairy.

10. Economics • Lower or little financial gain from internal herd growth if: • Attain IHG by keeping unprofitable and/or low profit cows in the herd. • Costs associated with preventing cows from leaving the herd too high.

11. How Many Replacements are You Generating? • Combination of milking herd and replacement program. • How many calves born per year? • Calving interval • Ratio of heifer calves to bull calves. • How many heifer calves born dead? • DOA • How many calves don’t complete replacement program? • Non-Completion percent – or “heifer cull rate”

12. How Many Replacements are You Generating? • If all four in your favor, you can generate many replacements. • If 3 in your favor, may still be able to generate more heifers than needed. • If 2 in your favor, will be difficult to generate excess heifers. • If only one factor in your favor, may be difficult to maintain herd size.

14. Economics • By generating more heifers than needs, you have the ability to generate additional earnings: • If need 50 replacements and only generate 50, no gain. • If generate 60, have 10 more than needed. • If generate 40, have to purchase 10 to maintain herd size.

15. Economics • Lower or little financial gain from internal growth if: • The cost to raise the heifers is high. • Labor • Feed • Inventory – older calving age • If the quality of the replacement is low. • Less profitable animal in the herd: i.e. stunted or fat

16. Capturing the Value of Internal Growth • Internal growth is having more animals than you need. • Capturing value becomes a management decision. • Many different ways to capture value. • Mission, vision, values, goals of family and business important when evaluating.

17. Growing Herd Size • The extra animals generated enter the dairy herd. • Grow herd size without purchasing outside animals. • Have the ability to handle increased numbers or can easily add the capacity. • Increase profits through increased utilization of assets. • If not full or not at maximum size for site, may be best means to capture value.

18. Key Factors • Control genetics and quality of replacements. • Slow steady growth over time. • Can grow with closed herd. • Operating expenses (feed, labor, etc). used to build balance sheet assets (cattle). • Has to be economical to grow.

19. Selling Milking Cows • All replacements enter the herd. • Sell the least profitable dairy cows in the herd. • Market them for dairy purposes. • Average a higher price then beef price.

20. Key Factors • Stable herd size. • Keep replacements – may be better genetics. • Keep calf that replacement heifer is carrying. • Improve dairy herd by replacing less profitable cows. • Increase value of animals sold through higher price for dairy vs beef. • Capturing most of the calf crop.

21. Selling Springing Heifers • Raise heifers. • Sell excess animals at calving for replacements purposes.

22. Key Factors • Stable herd size. • Pick which animals enter herd vs are sold. • For animals sold – no risk if they don’t make it through calving. • Possible loss of genetic progress: replacement and calf she’s carrying. • Possible fewer calves entering system.

23. Selling Calves • Sell excess heifers early in age. • Only raise enough that are needed to maintain herd size.

24. Key Factors • Stable herd size. • Limited replacement program capacity. • Pick which calves to raise. • Minimized replacement expense. • Increased calf sales. • Limited number of heifers if unusual event in dairy or replacement program.

25. Leasing Animals • Keep all animals. • Lease out excess milking animals.

26. Key Factors • Building herd size – increasing assets. • No investment in buildings/land, etc. • Keep all genetics and calves. • If animals come home – no longer closed herd. • Make return on investment in cattle. • Return may be negative!

27. Take Home Points • Internal herd growth is a profit source under control of management. • Interaction among many areas of the business. • Operational costs building assets on the balance sheet, not just maintaining assets. • Means of capturing value is a management choice.

29. We are privileged to have been able to work with our 3 “Internal Growth” Case Farms: Hal and Kerry Adams Manchester, NY

30. We are privileged to have been able to work with our 3 “Internal Growth” Case Farms: Nathan, MaryLou and Steve Durfee Chittenango, NY

31. We are privileged to have been able to work with our 3 “Internal Growth” Case Farms: Pat and Marty Hanehan Saratoga Springs, NY

32.  Case Herds were selected from search of either Farm Credit or Cornell Dairy Summaries (or both).  Primary search item was multi-year Internal Growth.  As you will see, each herd arrived at good level of growth differently, and captured the dividend differently as well.  While there is a mountain of “measurables” we’ll be looking at, the most important trait linking these businesses is more observable than measurable.

33. Mindset!  Positive Attitude  Bias for Action  Realistic View of the Changing Dairy Industry (Vision)  Reconfiguring Business to fit that Vision (Mission)  Knows how to Implement Measured Improvements  Particularly Good at Problem Solving  Excellent with People

34. Pat & Marty Hanehan Hanehan and Sons Dairy

41. 2004 year end numbers

43. What Really Matters… Learning from How and When Cows “Break” John Conway Bill Stone Jerry Bertoldo

44. Not so useful:  May include those sold for Dairy  Says nothing about underlying problems  But may “light up” the need to look deeper Cull Rates

45. DHI Cull Codes Not so useful:  Better than “cull rate”  Does not allow for full sequence of insults  Lean on details for quick, deep analysis  Some are “fast and loose” with single code  May allow analysis of trends over time Left for Dairy Left for low production Left for reproduction Left for injury/other Left – died Left for mastitis Left for feet/legs Left for udder Left – no reason

46. Who? When? How? Why? What Really Matters is… Learning from How and When Cows “Break” Analysis Gets to the root cause. Best way to improve processes & practices in a way that’s meaningful. Connecting to a memory of an individual may bring back the seriousness of the insult Gives you the advantage of seeing trends over time -- i.e. rash of fresh cow problems when transition group size goes beyond threshold. Exactly what symptoms were observed & treated. Becomes part of readily searchable record.