For January, our example herd was UP
Protein increased $0.05/lb. and fat decreased $0.01/lb. On a hundred-weight basis, Statistical Uniform Price (3.5% fat) increased $0.15/cwt and Class III price increased $0.18/cwt which resulted in PPD decreasing $0.03/cwt. We had previously predicted PPD to decrease $0.02/cwt. Regionally, fat and protein declined a little starting their seasonal downward trend.
Thinking outside of the bulk tank – Management gurus talk about “Thinking outside the Box”. This month we want to focus on thinking “outside of the bulk tank”. Two recent situations got our attention. In one, 2 herds in the Syracuse market both ship 6.35 pounds of components. Many experts suggest aiming for this target. However, these herds had a $0.42/cow/day income difference. One had high milk with lower components; the other had lower milk with higher components. In this case, pounds of components sold did not give a complete picture. Another pair of herds in the same market had good production and the same income per cow (82 pounds of milk, 4% fat, and 3.2% protein). One herd was comfortable; the other herd was in crisis. Why? Very different overhead cost structures turned out to be the answer.
A major overhead expense is debt, historically expressed as debt per cow. Consider our 82-pound herds. With debt of $5,000/cow and 5% interest over a 10-year amortization, payments will be 2.60/cwt on $20/cwt debt. Reducing that debt to $3,000/cow or to $12/cwt, reduces payments to $1.55 or $1.05/cwt less. More recently, debt has been expressed per cwt milk produced per year. As shown above, this may give a better financial picture than debt/cow.
Going back to our two herds with identical incomes per cwt, higher P&I payments and heifer carrying costs led to an increase in breakeven price of $1.90/cwt for the herd in crisis. It is important to remember that high production performance does not guarantee good financial performance if other costs are not in line.