Grazing in Michiana
When I think about our most profitable level of production, I think about profit as income minus expenses. In the most basic sense the most profitable level of production is when the most money is left over after expenses to run the operation, debt servicing and family living have all been paid.
It is kind of like a moving target, as costs for running the operation are always changing. For example, in 2009 we had very low milk prices and very high feed prices, so the goal that year was to not lose money. But in 2014 there were high milk prices and low feed costs and the goal was to make as much as possible. The risk in 2009 was much higher than in 2014.
There are factors that play into the profitability of a dairy grazing business. First is reproduction—we want our cows to calve every spring because the milk comes after the calf is born. Body condition is also key because without good body condition, the cow doesn't have what it takes to make the transition to peak milk and also breed back in a timely way. You have to be careful about skimping too much on feeding the cow in the tight times, because if you sacrifice too much body condition it can have long-term effects.
Pasture utilization is another important piece of profitability. When the pasture is growing its best (May through September) it gives us the cheapest feed, and the margin between income and expenses is usually the greatest, which translates into more profit. Michael Murphy, a dairy grazing farmer, said that the greatest profitability is realized when at least 50 percent or more of the cows dry matter needs comes from grazing pasture.
Something we have been thinking about is whether we could reduce the number of cows, thus increasing the amount of pasture per cow and reducing feed cost. Would we still have the same, or even better, level of profitability?
I use a pen, calculator and a paper to figure out the most profitable level of production and I try to do this as often as prices change, the feed ration changes, or when we are thinking about changing some part of the operation. I think we should keep figuring out if we are making a profit.
Some of the main reasons we are producing at the level we are at is to maintain an adequate cash flow to pay for farms and equipment and to provide an adequate cushion of cash to manage the ups and downs of the markets. Another reason is that one of my goals was to have enough cows to harvest the grass at peak growth levels and then when growth levels are lower it means supplementation of other feeds. Having larger numbers of cows, lowers the fixed cost per animal.
Each year is different, so we need to be paying attention and making adjustments as needed to maintain profitability.