Better business decisions start here 1 A Benchmarking Tool That Allows More Effective Decisions W.J. (Bill) Grexton Manager, Herd Management Services,

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Better business decisions start here

A Benchmarking Tool

That Allows More Effective Decisions

W.J. (Bill) Grexton

Manager, Herd Management Services, CanWest DHI

660 Speedvale Ave W, Guelph, N1K 1E5

(519) 824-2320 ext 254;

Email: [email protected]

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The Question…

In light of the current economic & quota situation…

How can a dairyman know how they compare against other progressive dairymen? From both a production, labor and financial perspective Need to know issues with each enterprise

That is Profit Profiler’s role…

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Why Do It?

Dairyman needs to know their costs in this economic environment

Dairymen should know how they are doing compared to other dairies (for survival)

Very few options to find true costs by enterprise

Impact of making changes is tremendous 100 cow herd = $700,000 + revenue 5% change = $35,000 Range between dairies = 25-50%

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Basic Principles of Program

To Benchmark Key Measures and Answer Questions

Goal: To show strengths and opportunities for improvement

• What is my cost per acre to grow forages?

• What are ALL my cow costs – including home grown feed and labor?

• What is cost to raise a heifer?

• What is my labor efficiency compared to others?

• If I make a change, what will the impact be?

+ +

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Combines financial and physical information to provide benchmark results To link cow, crop & labor performance to financial

values

Basic Principles

Subdivides expenses into 4 enterprises to find efficiencies within the dairy business (forages, grains, cows, heifers) Need to know what each enterprise contributes to overall

profit Calculates a true cost of “home grown feeds”

Compare to & rank against other similar dairy businesses

Uses their own costs to project “What If” scenarios

Advisor assistance to help collect info and discuss results

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Reports – 3 Viewpoints

Business to Business

Enterprise Cost of Prod’n

Prod’n & Investment Values

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What Do You Measure?

$ / Cow $850

HolsteinHolstein Jersey Holstein (3.7:3.4) Jersey Holstein (3.7:3.4)

$ / HL $8.99 $11.44 $9.25

$ / kg Fat $2.30 $2.18 $2.50

$ / Milk Rev $ .124 $ .125 $ .126

$725 $875

Purch. Feed CostPurch. Feed Cost

9,455 (3.8:3.2) 6,340 (5.25:3.7) 9,455 (3.7:3.4)

$.727 /L; $19.13 /kg $.908 /L; $17.46 /kg $.733 /L; $19.81/kg

- Ontario pricing

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Report Outline

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What Issues do you see?

Cost /

First – Look at the Whole Business

Evaluating the business…

Return Over Cost /

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Forage Costs

Next, Look at the 4 Enterprises

Evaluating the Enterprises…

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How do they go together?

Evaluating the Enterprises…

Less / heifer + more total = extra animals or lower revenue

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Top 10 in $ /Acre

But Poor Yield

= Higher Cost /Cow

Comparing Physical Parameters

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Heifers calving later and giving

less milk

Comparing Physical Parameters

25% less cows and 33% less

components sold = 40% less

revenue

Less investment = further to go to bring facilities up to standard

Finally: Total Cost / $1 of Revenue = $.95 (compared to avg of $.78) puts this herd in bottom quartile – and with very little hope

of expandingWhat Options do they

have?

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What If?

Looking at $ effect of change in…

Production

Reproduction

Udder Health

Replacements

Cost of

Production

Use multiple times with

various options to

find best plan of action

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Looking at Possibilities

With management

changes…there is Hope!

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The Process…

Financial StatementsProduction InformationCropping Information

Labor Information + Advisor Assistance

Better Decisions

Useful Benchmarks

Increased Profits

+ “What If” Options

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Some Results from Profit Profiler

The information is from 135 dairies who supplied data with 2008 - 2011 year ends

Must have 20 herds to make a group. If not 20 available, then criteria expands until 20

Some comparisons combine 2 + years

Dairies who use the program can have their data compared to any group available – multiple comparisons

Currently there are >15 groups to compare against. As more people use the program, we will be able to see differences between different management styles

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Summary of Costs

2010-11 (39 Herds)

25-90th PCTL

Total Cow Costs 54.7% 45 - 62%

Cow Feed 24.8% 18 - 29%Labor 7.8% 4.5 - 8.7%Heifer Cost 11.5% 8 - 13% (expressed as % of Milk revenue)

Cost / heifer / yr $910 $626 - $1014

Forage Cost / Acre $446 $297 - $546

Milk Revenue /person $451,695 $289,682 - $735,519

Cost to make $1.00 $.791 $.66 - $.85

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Summary of Costs

2010-11 (39 Herds)

25-90th PCTL

Total Cow Costs 54.7% 45 - 62%

Cow Feed 24.8% 18 - 29%Labor 7.8% 4.5 - 8.7%Heifer Cost 11.5% 8 - 13% (expressed as % of Milk revenue)

Cost / heifer / yr $910 $626 - $1014

Forage Cost / Acre $446 $297 - $546

Cost to make $1.00 $.791 $.66 - $.85

$78,970 Diff$30,230 Diff

$35,700 Diff

$44,820 Diff

$122,050 Diff

$153,975 Diff

Based on 100 cows

How Valuable is

“Average” when making

plans?

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Cost to make $1.00 $. 782 $.847

Milk Revenue /person $480,782 $280,465

Total Investment /cow $33,958 $23,181

Total Debt / kg Fat $50.88 $43.50

Comparison by Milk Prod’n 2010-11

# Cows

Avg Milk Sold/Cow

98

8,123

Low (20 Herds)

219

10,842

High (21 Herds)

Net Farm Income $414,992 vs $101,263

per 100 cows $189,494 vs $103,329

Total Cow Costs

Cow Feed Cost

Heifer Costs

54.6% 59.7%

25.6% 27.3%

11.1% 11.7%

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View of Costs by Prod’n Level

The potential to help clients improve is amazing!

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Summary

High Prod’n herds sold 2,600+ more kg Milk /Cow High Prod’n herds sold 9,400 more kg Fat /Person High Prod’n herds produced Fat @ $ .37 lower forage

cost and $ .52 lower cost overall High Prod’n Herds had a $ .07 less cost per $1.00 of

total revenue High Prod’n Herds had 5.73% return on investment vs

4.25% for Low Prod’n herds ($4.80 vs $3.22 / kg) Low Prod’n herds had lower cost /yr and total to raise

heifers with similar results (%). However total 1st lact milk Prodn’ was still significantly lower

There is still a wide range in profitability within each group

- Cow cost = +/- 3.8% & 5.4% from avg (high:low)

- Cost / $1 = +/- 5.3% & 6.3% from avg

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Cost to make $1.00 $. 686 $.966

Milk Revenue /person $464,363 $266,210

Total Investment /cow $27,274 $33,710

Total Debt / kg Fat $36.82 $56.57

Comparison by Cost 2010-11

# Cows

Avg Milk Sold/Cow

98

9,037

High (20 Herds)

226

9,568

Low (21 Herds)

Net Farm Income $591,999 vs $28,054

per 100 cows $261,946 vs $28,627

Total Cow Costs

Cow Feed Cost

Heifer Costs

49.7% 66.1%

21.7% 28.9%

9.4% 13.9%

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Cost Summary

Every measure for High Cost Herds was worse than Highly Efficient herds – except…

Invol Cull Rate was lower but this may have been because of longer Age @ 1st Calving

Low Cost Herds had an overall greater return to ownership / investment – 10.2% vs 3.3% ROI

Profit difference of $591,999 vs $28,627 does not even cover principle payments for poor herds ($1.9 M debt)

There is a narrower range in profitability within top group compared to other comparisons = ??

- Cow cost = +/- 2.9% & 4.1% from avg (low: high)

- Cost / $1 = +/- 2.8% & 4.0% from avg

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Take Home Message…

Range between dairymen shows potential that is available for improved profit. (50+% of avg)

Home Grown Feed costs - significant % of Costs

Feed Costs are ~50% of total “Milk Cow” cost

Labor is next greatest cost – must make it pay

Good Management = More profit!

Using AVERAGE costs when planning changes is not a reliable measure – too much variation

YOU NEED TO HAVE AN ACCURATE COST OF PRODUCTION FOR YOUR BUSINESS!

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Who Should Use it?

Someone who is planning to make changes Someone who plans to be in the business

longer than 5 years Someone who wants to know where they

rank

They must be… Willing to allocate expenses Willing to “thoughtfully” provide data Dairy owner or manager Must sign Agreement of Use Must be willing to pay for service…

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How Does it Work?

Contact a certified advisor All data must be checked by a certified advisor –

for assistance and accuracy

Gather your information Profit & Loss Statement, Balance Sheet, Milk Board

statements, production, cropping and labor information

Make an appointment to fill out input form with advisor

Once processed, results will be explained

Log onto web program to do unlimited comparisons and “What If’s”

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What Value is it to the Dairyman?

Seeing enterprises costs allows more informed management decisions Can now understand why certain enterprises may

need to be reduced and outside purchases made

Reports show results in ways that are not normally expected – which allows a better evaluation Eg: Milk Produced vs Milk Sold /cow – identifies

costs associated with long lactations

Eg: Labor measures allow you to compare cost and efficiency of labor force (2nd greatest cost)

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What Value is it to the Dairyman?

Can see the operation from both financial and production viewpoint - Short & concise - only key items are shown

Having the overall business broken down into smaller “pieces” can help identify each enterprises strengths and opportunities to improve

Knowing where others are doing a much better job allows you to focus on what to work on 1st

Use of the “What if” allows you to see which option give the best outcome

Enhances communication with lender

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Advisor Involvement

Each herd must be “vetted” by a certified advisor All data must be checked accuracy Offers assistance to producer in collecting info

Provides value added option to advisors In addition to existing service package Better understanding of dairy business

To be certified – training and licensing ($250 /person /yr)

Reduction in cost to advisor for “time”

Web based for convenience

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Comments?

2. How can you see this fitting into your business model?

a) Promote it and DHI will work with dairyman

b) Collect data and DHI gets results to dairyman

c) Part of your client service package

d) Variation of above…

1.Do you think this is something that could be used to assist your dairy clients/

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Website Accessible

Details on website…

www.profitprofiler.ca

or

contact

Thank you! Ph: (800) 549-4373 Ext 254 .

Fx: (519) 824-1330 [email protected]

Documents

Better business decisions start here 1 A Benchmarking Tool That Allows More Effective Decisions W.J. (Bill) Grexton Manager, Herd Management Services,