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Profit drivers for successful grazing dairy businesses
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Profit drivers for successful grazing dairy businesses

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  • 1. Profit drivers for successful grazing dairy businesses
  • 2. No of cows Herd size to earn the average national wage 200 180 160 140 120 100 80 60 40 20 0 Average 1980 1985 1990 1995 2000 Year 2005 2010 2015 2020
  • 3. No of cows Herd size to earn the average national wage 200 180 160 140 120 100 80 60 40 20 0 Average Top third Possible Skill before scale! It is important to know the drivers of profit of your business 1980 1985 1990 1995 2000 Year 2005 2010 2015 2020
  • 4. “If you don’t like change, you’ll like irrelevance even less!” Gen. Eric Shinseki
  • 5. Get the priorities right Fine tuning System 80% of potential gain made by getting the system right
  • 6. Too many people get it wrong Fine tuning System
  • 7. No increase in productivity with a 100% increase in inputs
  • 8. Operating surplus has not increased in line with revenue
  • 9. What drives profit?
  • 10. What drives profit? • • • • • • Milk price Milk yield/cow Milk yield/ha Feed price Milk to feed price ratio Cost of production – Variable cost – Fixed cost
  • 11. Greater milk price increases profit Net margin, £/ha 1500 1000 500 0 -500 -1000 -1500 y = 48.35x - 1337 R² = 0.04 P = 0.07 -2000 -2500 25.0 30.0 Milk price, p/L 35.0
  • 12. What drives profit? • • • • • • Milk price Milk yield/cow Milk yield/ha Feed price Milk to feed price ratio Cost of production – Variable cost – Fixed cost
  • 13. No relationship between milk yield/cow and profit Net margin, £/ha 1500 1000 500 Milk yield/cow is an output of a system, not a driver of a successful dairy system! 0 -500 -1000 -1500 -2000 -2500 3000 P = 0.92 4000 5000 6000 7000 Milk yield, L/cow 8000 9000
  • 14. What drives profit? • • • • • • Milk price Milk yield/cow Milk yield/ha Feed price Milk to feed price ratio Cost of production – Variable cost – Fixed cost
  • 15. Increased profit with milk yield/ha (?) Net margin, £/ha 1500 1000 500 0 -500 -1000 -1500 y = 0.04x - 400 R² = 0.05 P < 0.05 -2000 -2500 5000 10000 15000 Milk yield, L/ha 20000
  • 16. Profit increases with stocking rate Net margin, £/ha 1500 1000 500 0 -500 -1000 y = 278x - 387 R² = 0.08 P < 0.01 -1500 -2000 0.0 0.5 1.0 1.5 2.0 2.5 Stocking rate, cows/ha 3.0 3.5 4.0
  • 17. What drives profit? • • • • • • Milk price Milk yield/cow Milk yield/ha Feed price Milk to feed price ratio Cost of production – Variable cost – Fixed cost
  • 18. Feed price not related to profit Net margin, £/ha 1500 1000 500 0 -500 -1000 -1500 y = -0.78x + 295 R² = 0.006 P = 0.13 -2000 -2500 0 100 200 300 Feed price, £/t 400 500
  • 19. What drives profit? • • • • • • Milk price Milk yield/cow Milk yield/ha Feed price Milk to feed price ratio Cost of production – Variable cost – Fixed cost
  • 20. As Milk-feed price ratio increases, profit increases Net margin, £/ha 1500 1000 500 0 -500 y = 886x - 792 R² = 0.09 P < 0.01 -1000 -1500 -2000 0.0 0.5 1.0 Milk-feed price ratio 1.5 2.0
  • 21. What drives profit? • • • • • • Milk price Milk yield/cow Milk yield/ha Feed price Milk to feed price ratio Cost of production – Variable cost – Fixed cost
  • 22. Production cost/L strongly related to profit/ha Net margin, £/ha 1500 1000 y = -99x + 3172 R² = 0.79 P < 0.001 500 0 -500 -1000 -1500 -2000 -2500 20 25 30 35 40 Total production cost, p/L 45 50
  • 23. Both variable and fixed costs tied to profit Net margin, £/ha 1000 Net margin, £/ha y = -140x + 1763 R² = 0.43 P < 0.001 1500 y = -93x + 1533 R² = 0.40 P < 0.001 1500 500 0 -500 -1000 -1500 -2000 -2500 1000 500 0 -500 -1000 -1500 -2000 -2500 0 10 20 30 Variable production cost, p/L 0 10 20 30 Fixed cost, p/L 40
  • 24. Production costs drive profit/ha 2008-09 2010-11 $5.21/kg $7.36/kg 2009-10 $6.16/kg 2011-12 $6.69/kg
  • 25. Financial performance
  • 26. Where does the money go? Overheads Property Feed 4% 14% 24% Forage machinery 6% 5% Machinery & power Forage 10% 4% Vet, med, & AI 5% 17% Labour 11% Livestock sundries Herd Replacement
  • 27. The more pasture in the diet, the lower the cost of milk production 0.35 Production cost, £/L 0.30 0.25 US traditional Dk UK Ger NL Fr 0.20 0.15 Ire 0.10 NZ Aus 0.05 0.00 0 20 40 60 Percentage of grazed grass in diet, % 80 100
  • 28. The more pasture in the diet, the lower the cost of milk production For every 10% increase in the percent of grazed grass in the diet, Production costs decrease 4p/L Production cost, £/L 0.35 y = -0.0006x + 0.28 0.30 R² = 0.98 0.25 US traditional Dk UK Ger For every 10% increase in the percent of grazed grass in the diet, Production costs decrease 0.6p/L 0.20 0.15 0.10 0.05 NL Fr Ire NZ Aus y = -0.0041x + 0.45 R² = 0.97 0.00 0 20 40 60 Percentage of grazed grass in diet, % 80 100
  • 29. Total production cost, p/L Production costs decline with increased milk from forage in UK 50.0 y = -0.0028x + 37.8 R² = 0.19 P < 0.001 45.0 40.0 For every 1,000 L milk produced from forage, production costs drop 2.8p 35.0 30.0 25.0 20.0 15.0 0 1000 2000 3000 4000 Milk from forage, L/cow per yr 5000
  • 30. Net margin increases with milk from forage in the UK 1500 Net margin, £/ha 1000 500 Every 1000 L milk from forage is 0 worth £340/ha -500 y = 0.34x - 726 R² = 0.27 P < 0.001 -1000 -1500 -2000 0 1000 2000 3000 4000 Milk from forage, L/cow per yr 5000 6000
  • 31. Same in Ireland 4000 Net profit (€/ha) 3500 R2 = 0.42 3000 Every additional t DM/ha is worth 2500 €161/ha 2000 1500 1000 500 0 0 2 4 6 8 10 12 Estimated Grass utilisation t DM/ha 14 16
  • 32. Profit drivers in successful dairy businesses – – – – – Milk yield/cow is not a driver of profit Focus on cost/kg milk or cost/kg MS Costs decline with increased pasture in diet Profit increases as milk from pasture increases Grow and utilise as much pasture as possible