5 Tips to Maximize Dairy Profitability

5 Tips to Maximize Dairy Profitability
4/13/2018

management tools are available to effectively and efficiently help improve milk production and stay competitive. Here are a few ways to help maximize dairy profitability and key drivers for future success:

1. Sound Economic Principles = Sound Decisions
Most all sectors of agriculture have seen tremendous increases in price volatility in the last decade. The number of dairy operations in the United States has decreased over time, but it is clear that industry consolidation was occurring long before the increase in price volatility, reinforcing the importance of focusing on producing at the lowest cost per unit of production rather than focusing solely on price risk.

2. Making Continual Improvements
Large swings in both dairy input and output prices have resulted in significant shifts in year-to-year profitability. A natural concern for dairy owners and managers is to focus on ways to manage this risk. However, predicting where prices might go in real time is challenging and managing price risk is difficult.

Thus, for dairy owners and managers, it is much more important to focus on factors that you have control over and strive for continual improvement in these areas. That is, focusing on producing milk at the lowest cost/unit of production for long-term business sustainability.

3. Delivering More Milk
Profitability of dairy operations is extremely variable, so your management decisions and how you use your resources is very important. Thus, making well-informed management decisions related to production can mean the difference between profit and loss.

Two factors consistently associated with more profitable operations are greater herd size and increased production per cow – both of these are methods for spreading the large fixed costs associated with running a dairy across more production.

4. Evaluating Marginal Revenue vs. Marginal Cost
An important decision rule for profit maximization is to produce milk where marginal revenue is greater than marginal cost. By examining historical average returns from dairies versus averages from top performing dairies, successful dairies focus on achieving greater marginal revenue over marginal costs.

5. Efficiency is Key to Profitability 
Efficient use of resources is a common attribute of highly profitable operations across business sectors. When considering efficiency in the dairy business, there are three main areas to consider: 1) efficient use of current facilities, 2) economies of scale, and 3) efficient use of the cows. These concepts may or may not decrease costs per cow, but they almost always decrease cost per unit of milk produced, which is the key in a commodity market.

We know a thriving dairy means everything to dairy producers and their families. These tips can help improve productivity, efficiency and ultimately, profitability, which results in success in your dairy.

Dairy Herd Management, March 2018

Tags: Dairy Profitability, Management Tips