After nearly five years of low milk prices, where is there fat left to trim off the farm budget? The recent Great Lakes Regional Dairy Conference in Frankenmuth, Mich., offered out-of-the-box ideas for farmers during sessions to help identify ways to find savings.
Allen Bonthuis with AIS Construction Equipment has started consulting to help farmers be more mindful of their resources and learn their waste. He says there are many similarities between material-handling businesses such as mining and farming, which is one of the reasons he created FarmingLean.com.
“The moving material, the processing, a commodity becoming a value-added product — these people make a living moving material, and to us, that seems like the thing that has to happen just to get it out of the way,” he says.
Bonthuis presented with Ross Veltema of Top Grade Aggregate to apply principles of mining and extracting materials to farming. “When you think about truck placement, where am I going to place the mixer or the mixing truck to the pile? There’s a considerable cost to moving that machine even 100 feet,” Bonthuis explains.
When accounting for the size of a loader, such as a common three-yard wheel loader, at $55 to $56 per hour and accrued mileage, moving only 700 feet costs about $2.50, according to Bonthuis. “Once you know those numbers, it can help you sharpen up the placement of the equipment,” he says. “Maybe the size of the equipment needs to change so you can make fewer trips.”
For the average dairy, operating the loader, tractor and mixer costs about $100 an hour. “If we can save you one hour a day, 365 days a year, you’re talking nearly $40,000 in savings in one year,” he says.
Alley scrapers in freestall barns are another area Bonthuis points to as wasted expenses. “We use an adjustable hydraulic scraper — they’re about twice the cost of a tire scraper, but they end up saving you over half the time to scrape barns,” he says.
In a recent demonstration in Central Michigan, Bonthuis was able to save seven minutes of scraping per group of cows, which over a year means a savings of more than $32,000.
Bonthuis identifies nine areas of waste in agriculture, which align with the material-handling business.
“Once you start to identify where the waste is and the cost, you’ll be amazed by how many places for improvement you can find,” he says.
The nine areas are:
- Transport: the waste of moving materials between locations
- Inventory: the waste of resources tied up in raw materials and finished products
- Motion: the waste of unnecessary movement
- Waiting: the waste of waiting for a machine, process, product to arrive, etc.
- Overproduction: the waste of producing more than can be sold at projected profits
- Overprocessing: the waste of adding steps to produce a product not required by the customer
- Defects: the waste of mistakes in the process and necessary rework
- Talent: the waste of not using the talents of your employees to the fullest
- Resources: the waste of not turning off lights, machines, etc.
EQUIPMENT COSTS: Allen Bonthuis with AIS Construction says operating a loader, tractor and mixer on the average dairy costs about $100 an hour.
Not all heifers are equal
The increasing replacement heifer population on dairies has caused some farmers to cull some cows prematurely, which can cost them money, says Dr. Michael Overton with Elanco Animal Health.
Overton says in the early 2000s it was unusual for dairy farms to raise enough heifers to meet their basic replacement needs. “Reproductive performance was not ideal, and we did not have sex-sorted semen, so most herds over time would purchase some animals to meet replacement needs,” he says.
Today, vast improvements in reproductive performance, transition performance and widespread utilization of sex-sorted semen have created a replacement heifer surplus. “In the past, it would be common to have heifers comprise about 80% of the milking plus dry cow numbers, and in the latest data I’ve pulled together, it’s closer to 105% — way more than we need,” he says.
Overton has used a combination of genetic potential, along with growth performance, to identify which heifers should join the milking herd.
“By removing some of the bottom genetic potential heifers around 70 to 75 days of age, or about 7%, it ends up adding an increased cost per surviving heifer of $25 to $30,” he says. “On the flipside, the surviving heifers ended up producing quite a bit more milk in first lactation.” Projected additional income over the life of the heifer, Overton says, is about $174.
He encourages dairy farmers to make the right culling decisions for their herd. “Some producers are culling animals that maybe don’t yet need to be culled simply because of the heifer pressure coming though their pipeline,” he says.
Overton says every farmer needs to ask, “Does this heifer coming in represent better current and future value as compared to this existing cow?” Unfortunately, investment costs are not able to be recouped if farmers wait too long to make that decision.
By reducing the replacement heifer herd via selective culling, farmers may elevate the quality of their heifers but should be careful not to leave themselves too short of potential replacements. “The worst thing to do would be to make a really short-term decision now based on cash flow that ends up hurting in the future because of the inability to cull cows that need to be culled,” Overton says.
The Chicago Fed’s February report confirms financial stress on dairy farms is ongoing. According to senior business economist David Oppedahl, challenges in the dairy sector in Wisconsin and Michigan have depressed land values in those states. Ag bankers in their quarterly survey say there was an increase in voluntary liquidation on dairy farms, and the financial stress and difficult winter weather has many ready to sell.
Ben Spitzley, who leads GreenStone Farm Credit Service’s dairy team, says over the past decade, Michigan’s dairy industry increased the milk supply by nearly 80%, and the sector has been caught in a price pinch for at least the past four years.
“Fourth quarter of 2018 there was improvement in powder and butter prices and that helps Michigan dairy producers,” Spitzley says. “The outlook for 2019 — there’s some positive trends that we see. I get excited about all this new investment that’s going into processing.”
Spitzley said nearly $900 million in dairy processing projects in the region are providing hope the situation will adjust for the better.
Heslip works as the Michigan anchor/reporter for Brownfield Ag News.