Source: PENNSYLVANIA STATE UNIVERSITY submitted to
USING WHOLE FARM ASSESSMENT TOOLS TO IDENTIFY STRATEGIES FOR CHANGE TO INCREASE DAIRY FARM PROFITABILITY
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
TERMINATED
Funding Source
Reporting Frequency
Annual
Accession No.
0219120
Grant No.
2009-34437-19958
Project No.
PEN04347
Proposal No.
2009-05026
Multistate No.
(N/A)
Program Code
QU
Project Start Date
Sep 1, 2009
Project End Date
Aug 31, 2012
Grant Year
2009
Project Director
Holden, L. A.
Recipient Organization
PENNSYLVANIA STATE UNIVERSITY
208 MUELLER LABORATORY
UNIVERSITY PARK,PA 16802
Performing Department
Dairy & Animal Science
Non Technical Summary
The recent economic downturn in milk prices has caused moderate to severe financial distress on a significant number of dairy farms in both Pennsylvania and across the country. However, there is a segment of dairy farms that are maintaining high levels of profitability in the current environment. These farms are better positioned to deal with the wide variability in milk prices that have occurred over the past 15 years and the more recent increases in input costs because of sound management decisions based on information that links production measures to financial indices. Decision making tools, like the PA Dairy Tool and the Income Over Feed Cost Tool, can help producers determine where bottlenecks to higher levels of profitability exist within their operation. To date, more than 200 Pennsylvania dairy operations have had the PA Dairy Tool run on their farm. Preliminary data from across a variety of herds using the PA Dairy Tool showed estimated losses of $495 per cow; $77,309 per herd and $6.4 million total with 82 herds. This project is designed to first, gather data from at least 50 dairy farms over two years using decision tools; second, analyze that data to determine which farms are high profit (>4% ROA) and how five key areas contribute to high profit; third, determine best management practices for each of the five key areas with high profit farms through personal interviews; and last, use those profit proven best management practices to show marginally and unprofitable herds specifically what changes to make in order to improve overall profitability. The strategy sets that are developed will be communicated to dairy producers through ongoing extension programs, a webinar series and through articles in newsletters.
Animal Health Component
(N/A)
Research Effort Categories
Basic
(N/A)
Applied
100%
Developmental
(N/A)
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
3073499106050%
6016030301050%
Goals / Objectives
The objectives for this project are to: 1. Use the Profitability Assessment Dairy Tool (PA Dairy Tool) and the Income Over Feed Cost (IOFC) Tool to identify bottlenecks that limit dairy farm profitability on at least 50 farms over two years. (http://www.das.psu.edu/dairy/pa-tool and http://dairyalliance.psu.edu/resources/income-over-feed-cost-tool/) 2. Determine relationships between operational and capital efficiency and overall return on assets of high profit (greater than 4%) level farms. (Using data from objective 1 and existing databases). 3. Identify strategic changes that will result in improvement in IOFC, cows per worker, milk sold per worker, internal herd growth (IHG) and asset turnover ratio in order to increase overall farm profitability (using data from objective 2 and high profit level herds). 4. Teach dairy producers and advisors about strategies (objective 3) for improving farm profitability through ongoing training with Dairy Profit Teams, a series of webinars, and quarterly newsletters. The expected outcomes are sets of strategies to improve dairy farm profitability that will be communicated to producers through extension webinars and newsletters.
Project Methods
Data collection for objective 1 will be conducted at the farm level with up to 50 farms over two years. Data will be gathered for the PA Dairy Tool and IOFC Tool by project investigators and by other farm advisors. Using data collected in objective 1 and multiple years of data from 80-120 farms that have utilized the PA Dairy Tool, as well as data from existing databases, a large database will be assembled and analyzed. Data analysis will begin with correlations between ROA and the five key areas of: IOFC, cows/worker, milk sold/worker, IHG, and asset turnover ratio, and simple regressions will be completed with ROA with each of the key five areas to determine if linear relationships exist. Next, the full dataset will be analyzed using multivariate panel regression analysis (to determine the level of impact each of the key management areas listed in Objective 1, has on ROA. Farms will then be classified as highly profitable (>4% ROA on a market basis), marginally profitable (>0<4% ROA on a market basis) and unprofitable (=<0% market basis ROA). Researchers will test for a significant difference of means among groups. Finally, data from the highly profitable farms will be analyzed using multivariate panel regression analysis to determine the level of impact of each of the key management areas (five key areas plus any other highly correlated areas) has on ROA in highly profitable herds. Structured interview questions to determine best management practices for key areas will be used to gather data for objective 3. Once all of the best practices are collected and categorized, frequency of use across the high profit level herds as well as the correlations between individual and combinations of practices to ROA will be compared. Paired t-tests will be used to determine which practices are most significantly related to ROA and those practices will be used to develop strategies for change with marginally and unprofitable farms in order to improve profitability. These tested and proven strategies that are linked to high levels of profitability will be combined into "strategy sets" and will be communicated to dairy producers in objective 4. Using data from objectives 1 and 2 and the best management practices captured in objective 3, a concrete and proven set of strategies to improve profitability will be developed for each of the five key areas of focus (IOFC, cows/worker, milk sold/worker, rate of IHG, asset turnover ratio) and any other key areas determined by analysesThese "strategy sets" will provide clear, concise information about how to make changes in these key areas for maximum potential impact to profitability. The strategy sets will outline steps to be implemented, data to be monitored and expected outcomes from making the changes. In this way, dairy farm owners are provided with a step-by-step action plan that is proven to be effective on a variety of farms that have achieved high levels of profitability.

Progress 09/01/09 to 08/31/12

Outputs
OUTPUTS: The goal of this project is to develop strategic steps for change in key areas that dairy owners can implement to increase profit in their businesses. Objective 1: Forty-seven farms have provided data for the PA Dairy Tool. For the PA Dairy Tool data, herd sizes range from 41 to 1582 adult cows. The return on assets using 2009 data ranges from -10 to 8.7 with a mean of -0.6 and for 2010, the data ranges from -8.8 to 10.7. The asset turnover ratios ranged from 0.17 to 0.78 with a mean of 0.36 in 2009 and ranged from 0.12 to 0.72 with a mean of 0.35 in 2010. Operating expense ratios ranged from 0.52 to 1.29 with a mean of .85 in 2009 and ranged from 0.52 to 1.28 with a mean of 0.80 in 2010. For the herds in the project, in 2009 milk sold per worker ranged from 332,290 to 1,244,330 lbs with a mean of 725,694 and milk per cow ranged from 53 to 99 lbs with a mean of 71. In 2010, milk sold per worker ranged from 384,817 to 1,202,043 lbs with a mean of 689.191 and milk per cow ranged from 53.6 to 79 pounds per day with a mean of 67. For IOFC, monthly data is gathered from the farms and an IOFC was calculated each month. Of the participating, the range of IOFC from October 2010 to August 2011 was $5.09 to $13.93 with a mean of $8.79. The average monthly IOFC was lowest in January at $7.38 and the highest in March at $10.10. Objective2: It was noted that the relationship between capital investment and return on assets was correlated (r2=.78). Few farms that had a capital investment of over $8,000 per cow had a positive return on assets for years 2009-2010 when data was collected. Objective 3: Common strategies used by for high profit (>2% ROA) herds included higher than average milk production and milk sold per worker, higher than average internal herd growth rate and more attention to detail in young stock care and better communication and interaction with both on-farm employees and off-farm advisors. Objective 4: Outcomes of this research were shared with dairy producers, agribusiness representatives and Extension educators through two years of a conference call series entitled: "Show Me the Money" that provided key research summaries and new strategies on a variety of topics to help enhance on-farm profitability. Quarterly newsletters with summary data were disseminated to project participants, and popular press articles reached a broader audience with preliminary project results. PARTICIPANTS: Key Personnel: L. A. Holden, R. White, V.A. Ishler. Professional Development opportunities included: Participation in Show Me the Money conference call series (2010-2011 and 2011-2012). Collaborations: Ag Choice Farm Credit offered "Smart Start" credits for participation in this conference call series. TARGET AUDIENCES: The target audience of producers who participated in the project received individual results from the PA Dairy Tool and Income over Feed Cost Tool. Those farms were encouraged to use that data in there Profit Team meetings. A quarterly newsletter was provided during the project to share summaries and tips for increasing profitability. Following completion of objectives 1-3, a conference call series was provided in 2010-2012 for the dairy industry, including producers and their agribusiness advisors. Feedback from the first series (2010-2011) indicated that 94% of the participants surveyed found the information useful and 89% planned to use information in their own business. The second series in currently ongoing. PROJECT MODIFICATIONS: Due to low milk prices in 2009 and subsequently lower than expected returns, the "high profit" group was determined to be those over 1.5% rather than the 4% as indicated in the proposal. This change was made in order to complete objectives with enough farms to allow for some reasonable analysis and summaries to be made.

Impacts
Farms receiving summary data for the PA Dairy Tool had an opportunity to focus on the area most likely to improve their return on investment. Most of the farms in the study have continued to complete IOFC tool information on a monthly basis and have found it valuable when making feeding management decisions in the herds. A few of the projects herds have developed annual cash flows for their dairies and enrolled in Livestock Gross Margin. Key understanding about specific strategies for enhancing profitability like maintaining a reasonable capital investment per cow, monitoring IOFC and controlling feed costs, creating a positive internal herd growth through better youngstock care, and being above average in both milk quality and milk yields on a per cow basis found in this study were shared with producers and the industry as a whole through both quarterly newsletters, work with on-farm Profit Teams and with a final conference call series entitled: "Show Me the Money".

Publications

  • No publications reported this period


Progress 09/01/10 to 08/31/11

Outputs
OUTPUTS: The goal of this project is to develop strategic steps for change in key areas that dairy owners can implement to increase profit in their businesses. To date 37 farms have provided year one data for the PA Dairy Tool and Income Over Feed Cost Tool (IOFC) and 17 have provided data for year two. For the PA Dairy Tool data, herd sizes range from 41 to 1582 adult cows. The return on assets using 2009 data ranges from -10 to 8.7 with a mean of -0.6 and for 2010, the data ranges from -8.8 to 10.7. The asset turnover ratios ranged from 0.17 to 0.78 with a mean of 0.36 in 2009 and ranged from 0.12 to 0.72 with a mean of 0.35 in 2010. Operating expense ratios ranged from 0.52 to 1.29 with a mean of .85 in 2009 and ranged from 0.52 to 1.28 with a mean of 0.80 in 2010. For the herds in the project, in 2009 milk sold per worker ranged from 332,290 to 1,244,330 lbs with a mean of 725,694 and milk per cow ranged from 53 to 99 lbs with a mean of 71. In 2010, milk sold per worker ranged from 384,817 to 1,202,043 lbs with a mean of 689.191 and milk per cow ranged from 53.6 to 79 pounds per day with a mean of 67. For IOFC, monthly data is gathered from the farms and an IOFC was calculated each month. Of the 26 herds participating, the range of IOFC from October 2010 to August 2011 was $5.09 to $13.93 with a mean of $8.79. The average monthly IOFC was lowest in January at $7.38 and the highest in March at $10.10. Quarterly newsletters with summary data were disseminated to project participants, and popular press articles reached a broader audience with preliminary project results. PARTICIPANTS: L. A. Holden, R. White, V. A. Ishler, G. A. Varga, and M. Douglass. TARGET AUDIENCES: Dairy owners and their agribusiness advisors. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
In 2010, the averages and ranges of return on assets and asset turnover ratios did improve or stay steady but it will take a few years for the dairies to recover from the low milk prices in 2009 and high feed costs in 2010. Farms receiving summary data for the PA Dairy Tool had an opportunity to focus on the areas most likely to improve their return on investment. Most of the farms in the study have continued to complete IOFC tool information on a monthly basis and have found it valuable when making feeding management decisions in the herds. A few of the projects herds have developed annual cash flows for their dairies and enrolled in Livestock Gross Margin.

Publications

  • White, R. A., L. A. Holden, V. A. Ishler, G. A. Varga, and M. B. Douglass. 2011. Using Whole Farm Assessment Tools to Identify Strategies for Change to Increase Dairy Farm Profitability. J. Dairy Sci. 94:(E-Supplement 1)42. (Abstract).
  • White, R. 2011. Penn State Tool Helps Dairy Producers Find Bottlenecks to Profitability. Farmshine. February 4, 2011. page 20.
  • White, R. 2011. Penn State Dairy Extension Team Dairy Profitability Newsletter. Quarterly. Provides news, research updates and tips for dairy producers. 4 pages.


Progress 09/01/09 to 08/31/10

Outputs
OUTPUTS: The goal of this project is to develop strategic steps for change in key areas that dairy owners can implement to increase profit in their businesses. To date 37 farms have provided at least partial data for the PA Dairy Tool and Income Over Feed Cost Tool (IOFC). Twenty-six farms have complete data sets and have received a summary of the tool data for their herd. For the PA Dairy Tool data, herd sizes range from 41 to 1582 adult cows with a mean of 198. The return on assets using 2009 data ranges from -10 to 8.7 with a mean of -0.6. The asset turnover ratios ranged from 0.17 to 0.78 with a mean of 0.36 and operating expense ratios ranged from 0.52 to 1.29 with a mean of .85. For the herds in the project, milk sold per worker ranged from 332,290 to 1,244,330 lbs with a mean of 725,694 and milk per cow ranged from 53 to 99 lbs with a mean of 71. For IOFC, monthly data is gathered from the farms and a IOFC was calculated each month. Of the 26 herds participating, the range of IOFC from February 2010 to September 2010 was $4.13 to $11.32 with a mean of $7.53. The average monthly IOFC was lowest in April at $6.76 and the highest in September at $8.66. PARTICIPANTS: L. A. Holden, R. White, V. A. Ishler, G. A. Varga, and M. Douglass TARGET AUDIENCES: Dairy owners and managers in addition to their agribusiness advisors. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
Due to the low milk prices in 2009, return on assets and asset turnover ratios are much lower compared to benchmarks. For the farms currently in the project, investment per cow was high, averaging $10,870. Year 2 data will be especially important in identifying the "high profit" farms that were able to maintain some level of profitability in spite of negative economic conditions. Most of the farms in the study have continued to complete IOFC tool information on a monthly basis and have found it valuable when making feeding management decisions in the herds.

Publications

  • White, R. and L. Holden. 2010. Take it to the farm: Navigating the PA Dairy Tool. DairyPROS Presentation. July series. http://www.das.psu.edu/dairy-alliance/events/july-dairy-pros-series/ searchterm=dairy%20pros
  • Ishler, V., T. Beck, and R. White. 2010. Focus on margin, not feed cost and milk price. October 25, 2010. Hoard's Dairyman p. 719
  • Ishler, V., T. Beck, C. Williams, B. Kelly, and G. Wilcox. 2010. Managing risk to control your future. DairyPROS Presentation. October series. http://www.centerfordairyexcellence.org/index.php/register-for-dairy- pros.html