Dairy Farm Business Planning

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Dairy Farm Business Planning

  1. 1. Dairy Farm Business Planning Presented by: Tom Armstrong BSc(Agr), DVM, MBA Simcoe County Ag Info Day, Barrie Ontario. January 20, 2006 “ How to take your dairy farm from where it is, to where you want it to be.”
  2. 2. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status 2. Facilities 3. Financial Position
  3. 3. 1. Herd Production and Health Status Should be > 8,000 L sold per cow (DHIA > 9,000) Higher the production more profitable the farm <ul><li>Litres/cow determined by: </li></ul><ul><li>Dry Matter Intake </li></ul><ul><li>Reproductive Status </li></ul><ul><li>Udder Health </li></ul><ul><li>Milking Frequency </li></ul><ul><li>Genetics </li></ul>
  4. 4. Dry Matter Intake DMI - most important factor to profitable dairy production - should be > 23 kg - increase DMI by 1 kg = 2.5 - 3 L more milk - maintenance feed cost = $2.00/day - feed costs to produce 1 L of milk = 7 - 10 cents - l L of milk returns 65 cents
  5. 5. Quota Loan Cash Flow Analysis (8,000 litres/cow/year)
  6. 6. Quota Loan Cash Flow Analysis (8,000 litres/cow/year)
  7. 7. Quota Loan Cash Flow Analysis (9,000 litres/cow/year)
  8. 8. Quota Loan Cash Flow Analysis (9,000 litres/cow/year)
  9. 9. Factors Affecting DMI typical cow day - 10 to 14 hrs/day - resting - 1 additional hour lying = 1 kg milk - 5 to 6 hrs - eating - average 11 meals/day - 2 to 3 hrs - standing/walking/grooming/estrus - 1/2 hrs - drinking - 21 - 22 hrs - total time needed - 1.5 to 2.5 hrs - milking and holding area
  10. 10. Factors Affecting DMI <ul><li>forage quality - harvesting, storage </li></ul><ul><li>- fill quickly, pack well, cover </li></ul><ul><li>ration balancing </li></ul><ul><li>moisture levels </li></ul>
  11. 11. Factors Affecting DMI <ul><li>feeding practices - TMR vs component </li></ul><ul><li>frequency - increase feed frequency </li></ul><ul><li>increase DMI </li></ul><ul><li>- pushing feed up </li></ul><ul><li>- 3-5% left over </li></ul>
  12. 12. Factors Affecting DMI <ul><li>bunk space - 2ft/cow </li></ul><ul><li>- 4 row barn 24 - 30 inches per stall </li></ul><ul><li>- 6 row barn 18 - 19 inches per stall </li></ul>
  13. 13. Factors Affecting DMI <ul><li>water - most important nutrient </li></ul><ul><li>- 4 to 5 L => 1 L of milk </li></ul><ul><li>- quality, quantity, availability </li></ul><ul><li>- require 3.5 inches of water space/cow </li></ul><ul><li>or 3 ft/10 cows </li></ul>
  14. 14. Factors Affecting DMI <ul><li>cow health - lameness - strawberry foot, laminitis </li></ul><ul><li>- 25% of herd lame at any one time </li></ul><ul><li>- production - 1.5 L/day decrease </li></ul><ul><li>- reproduction, culling </li></ul><ul><li>- arch to back as progresses </li></ul><ul><li>- lame cows stand more </li></ul>
  15. 15. Factors Affecting DMI <ul><li>cow comfort - stall space requirements - resting positions </li></ul><ul><li>- rising and resting motions </li></ul><ul><li>- no obstructions - lung space - “Bob Zone” </li></ul><ul><li>- bedding management </li></ul>
  16. 16. Factors Affecting DMI <ul><li>cow comfort - tie stall design evolution </li></ul>
  17. 17. Factors Affecting DMI <ul><li>cow comfort - tie stall design evolution </li></ul>
  18. 18. Factors Affecting DMI <ul><li>cow comfort - tie stall renovations </li></ul>
  19. 19. Factors Affecting DMI <ul><li>cow comfort - tie stall renovations </li></ul>
  20. 20. Tie Stall Dimensions
  21. 21. Factors Affecting DMI <ul><li>cow comfort - free stall design </li></ul><ul><li>- size stalls to largest 25% of cows </li></ul><ul><li>- forward lung space </li></ul>
  22. 22. Factors Affecting DMI <ul><li>cow comfort - free stall design </li></ul><ul><li>- head to head stand - 18 ft </li></ul><ul><li>- 15 ft - side lunging </li></ul>
  23. 23. Factors Affecting DMI <ul><li>cow comfort - free stall design </li></ul><ul><li>- deterrent strap/bar - 10 inches below neck rail </li></ul><ul><li>- 40 inches above mattress </li></ul>
  24. 24. Free Stall Dimensions A B C Width milking 70 72 50 52 lact 1 68 70 48 48 dry 70 72 50 54
  25. 25. Free Stall Dimensions <ul><li>Outside stalls curb to wall - 10 ft. </li></ul>
  26. 26. Factors Affecting DMI <ul><li>cow comfort - bedding, management </li></ul><ul><li>- no level cement - 1.5 to 3% slope </li></ul>
  27. 27. Factors Affecting DMI <ul><li>cow comfort - bedding, management </li></ul><ul><li>- sand bedded stalls </li></ul>
  28. 28. Factors Affecting DMI <ul><li>Monitors of cow comfort - signs of injury </li></ul><ul><li>- hock injury - inadequate surface cushion </li></ul>
  29. 29. Factors Affecting DMI <ul><li>Signs of cow discomfort - injury </li></ul>
  30. 30. Factors Affecting DMI <ul><li>Signs of cow discomfort - abnormal positions </li></ul>
  31. 31. Factors Affecting DMI <ul><li>cow comfort - ventilation </li></ul><ul><li>- production decreases < 41F or > 68F </li></ul><ul><li>- heat stress > 78F </li></ul><ul><li>- stand 2.5 hrs/day more </li></ul>
  32. 32. Factors Affecting DMI <ul><li>cow comfort - ventilation </li></ul><ul><li>- chimney opening = .5 sq ft of floor space </li></ul>
  33. 33. Factors Affecting DMI <ul><li>cow comfort - ventilation </li></ul><ul><li>- open ridge - 2 inches per 10 ft of width </li></ul>
  34. 34. Factors Affecting DMI <ul><li>cow comfort - ventilation </li></ul><ul><li>- fans - high volume low speed </li></ul><ul><li>- basket - 3 ft - 30 ft apart </li></ul><ul><li>- tilted down at 30 degree angle </li></ul><ul><li>- placement - holding area > feed bunk > stalls </li></ul>
  35. 35. Factors Affecting DMI <ul><li>cow comfort - ventilation </li></ul><ul><li>- side walls - 12 ft opening </li></ul><ul><li>- automatic control of curtains </li></ul>
  36. 36. Factors Affecting DMI social behavior - separate heifers from cows - increase DMI 2.5 kg - cow movements - 2-5% decrease in milk production - over stocking - affect individuals not groups - increase competition - increase submissive cows - submissive cows - heifers, injured, new cows, fresh cows - no change in high ranking cows - low ranking - decrease lying - increased lameness
  37. 37. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position
  38. 38. Reproductive Status Average days in milk - 160 to 170 For every day greater than 160 days in milk production drops .08 litres/cow/day. Example - 100 cows milking - past 12 months ave days in milk 185 185 - 160 = 25 days 25 days x .08 litres/day x 365 days x 100 cows = 73,000 L 73,000 L x 65 cents/L = $47,450 in loss milk sales or 8,000 litres/cow/year - milk 9 less cows
  39. 39. Factors Affecting Reproduction <ul><li>voluntary waiting period </li></ul><ul><li>days to first service </li></ul><ul><li>heat detection rate </li></ul><ul><li>services per conception </li></ul><ul><li>early embryonic death, abortion </li></ul><ul><li>nutrition </li></ul><ul><li>cow health - lameness, vaccination program </li></ul>
  40. 40. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position
  41. 41. Udder Health <ul><li>goal SCC < 200,000 </li></ul>Example - 100 cow herd - 8,000 L - average SCC 300,000 100 x 8,000 x 2.3% = 18,400 L 18,400 L x 65 cents = $11,960 or milk 2 less cows Subclinical Mastitis Losses SCC % milk loss 150,000 0 200,000 .8% 250,000 1.5% 300,000 2.3% 400,000 3.8% 500,000 5.3%
  42. 42. Udder Health <ul><li>Clinical mastitis losses </li></ul><ul><li>goal < 10% incidence per lactation </li></ul><ul><li>cost of each case of clinical mastitis = $165 </li></ul><ul><li>$120 - discarded milk, decreased production </li></ul><ul><li>$20 - medication </li></ul><ul><li>$15 - vet costs </li></ul><ul><li>$10 - labour </li></ul>Example - 100 cow herd - 20% incidence per lactation (1.7/month) decreased to 10% incidence 10 cows x $165 = $1,650
  43. 43. Factors Affecting Udder Health <ul><li>environment - moisture, heat, organic matter </li></ul><ul><li>milking procedure </li></ul><ul><li>milking equipment </li></ul><ul><li>cow health - nutrition, stall design, lameness, </li></ul><ul><li>vaccination </li></ul>
  44. 44. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position
  45. 45. Milking Frequency <ul><li>milking 3x/day - increases production </li></ul><ul><li>5-8 litres/cow/day </li></ul><ul><li>- doesn’t work well in 6 row barn </li></ul><ul><li>milk fresh cows < 30 DIM 4X/day </li></ul>
  46. 46. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position
  47. 47. Genetics <ul><li>rarely a limiting factor to production </li></ul><ul><li>remove stress factors </li></ul>
  48. 48. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position
  49. 49. 3. Facilities <ul><li>Are present facilities at capacity? </li></ul><ul><li>- milking cows - all stalls being used </li></ul><ul><li>- switching cows in a tie stall </li></ul><ul><li>- dry cow facilities </li></ul><ul><li>- heifer facilities </li></ul><ul><li>- feed storage and handling </li></ul><ul><li>- manure storage - NMP </li></ul>
  50. 50. Commercial Break
  51. 51. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position
  52. 52. Financial Status of the Business Determining borrowing power <ul><li>Five important indicators / ratios: </li></ul><ul><li>- Equity </li></ul><ul><li>- Liquidity - current ratio </li></ul><ul><li>- Solvency - debt to equity ratio </li></ul><ul><li>- Repayment capacity - debt service coverage ratio </li></ul><ul><li>- Profitability - return to assets and equity </li></ul>
  53. 53. Equity How much are you worth? Indicates how much collateral available to borrow additional funds. Equity = total assets (FMV) - total liabilities (*average $2,060,000) * taken from OFMAP Ontario Dairy Summary 2003
  54. 54. Liquidity Your ability to pay financial obligations as they come due. - cash for monthly payables, loan payments - safety cushion for unanticipated events - liquid cash for unanticipated opportunities Current ratio = current assets current liabilities vulnerable strong 1 2 (ave .98)
  55. 55. Solvency How much you owe vs. how much you own. - ability of the farm to pay off debt if sold tomorrow - indication of financial risk and borrowing capacity - .25 ratio means for every $1 of assets the bank provides 25 cents and the farmer 75 cents Debt to equity ratio = total liabilities equity vulnerable strong 1.2 .4 (ave .25)
  56. 56. Debt Service Capacity How much you can afford to pay in loan payments. - indicates if the business can produce enough cash to pay annual principal and interest loan payments - .81 coverage means for every $1 of principal and interest payments the business generated 81 cents Debt service coverage ratio = net accrual income + interest + depreciation - living expense annual principal and interest payments vulnerable strong 1.1 1.4 (ave .81)
  57. 57. Profitability Return to assets (investment) - ave. rate of return on all investments since assets composed of equity and debt capital (farm loans) - should be higher than interest rate on borrowed money Return to assets = net income + interest total assets vulnerable strong 5% 2% (ave 4%)
  58. 58. Profitability Return to equity - ave. rate of return on owners investment in the business - compare to other investment opportunities Return to equity = net income equity vulnerable strong 7% 4% (ave 3.6%)
  59. 59. Financial Status of the Business Other Guidelines <ul><li>p rincipal and interest payments / litre of milk sold </li></ul><ul><li>- maximum 25 cents </li></ul><ul><li>debt load per litre < $1.65 </li></ul><ul><li>operating loan revolving </li></ul><ul><li>accounts payable current </li></ul>
  60. 60. Dairy Farm Business Planning Where is your dairy farm business today? Where will it be tomorrow, next year, next generation? How will you get your business to where you want it to be?
  61. 61. Canadian Farm Business Advisory Services Helps to cover the cost of hiring a qualified consultant who can help you develop your business plan.
  62. 62. Farm Business Assessment For a $100 fee, eligible producers can receive up to 5 days of consultation services Farm Financial Assessment : 3 days - review farms past and current situation, discuss objectives and identify options to meet your business goals. Action Plan : 2 days - assess different options to increase profitability with projected cash flows and written business plan. Follow-up : one day consultation the following year to discuss progress.
  63. 63. Questions ?

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