Better business decisions start here A Benchmarking Tool

Better business decisions start here A Benchmarking Tool That Allows More Effective Decisions W. J. (Bill) Grexton Manager, Herd Management Services, Can. West DHI 660 Speedvale Ave W, Guelph, N 1 K 1 E 5 (519) 824 -2320 ext 254; Email: bgrexton@canwestdhi. com

The Question… Better business decisions start here In light of the current economic & quota situation… How can a dairyman know how they compare against other progressive dairymen? Ø From both a production, labor and financial perspective Ø Need to know issues with each enterprise That is Profit Profiler’s role…

Why Do It? Better business decisions start here q Dairyman needs to know their costs in this economic environment q Dairymen should know how they are doing compared to other dairies (for survival) q Very few options to find true costs by enterprise q Impact of making changes is tremendous Ø Ø Ø 100 cow herd = $700, 000 + revenue 5% change = $35, 000 Range between dairies = 25 -50%

Basic Principles of Program Better business decisions start here To Benchmark Key Measures and Answer Questions • What is my cost per acre to grow forages? • What are ALL my cow costs – including home grown feed and labor? • What is cost to raise a heifer? • What is my labor efficiency compared to others? • If I make a change, what will the impact be? ++ Goal: To show strengths and opportunities for improvement

Basic Principles Better business decisions start here q Combines financial and physical information to provide benchmark results Ø q To link cow, crop & labor performance to financial values Subdivides expenses into 4 enterprises to find efficiencies within the dairy business (forages, grains, cows, heifers) Ø Need to know what each enterprise contributes to overall profit Ø Calculates a true cost of “home grown feeds” q Compare to & rank against other similar dairy businesses q Uses their own costs to project “What If” scenarios q Advisor assistance to help collect info and discuss results

Reports – 3 Viewpoints Better business decisions start here Business to Business Enterprise Cost of Prod’n & Investment Values 6

What Do You Measure? Better business decisions start here Purch. Feed Cost Holstein Jersey $ / Cow $850 $725 $875 $ / HL $8. 99 $11. 44 $9. 25 $ / kg Fat $2. 30 $2. 18 $2. 50 $ / Milk Rev $. 124 $. 125 $. 126 9, 455 (3. 8: 3. 2) 6, 340 (5. 25: 3. 7) $. 727 /L; $19. 13 /kg $. 908 /L; $17. 46 /kg Holstein (3. 7: 3. 4) 9, 455 (3. 7: 3. 4) $. 733 /L; $19. 81/kg - Ontario pricing

Report Outline Better business decisions start here 8

Evaluating the business… Better business decisions start here First – Look at the Whole Business Cost / Return Over Cost / What Issues do you see? 9

Evaluating the Enterprises… Better business decisions start here Next, Look at the 4 Enterprises Forage Costs 10

Evaluating the Enterprises… Better business decisions start here How do they go together? Less / heifer + more total = extra animals or lower revenue 11

Comparing Physical Parameters Better business decisions start here Top 10 in $ /Acre But Poor Yield = Higher Cost /Cow 12

Comparing Physical Parameters Better business decisions start here Heifers calving later and giving less milk Finally: Total Cost / $1 of Revenue = $. 95 (compared to avg of $. 78) puts this herd in bottom quartile – and with very little hope of expanding What Options do they have? 25% less cows and 33% less components sold = 40% less revenue Less investment = further to go to bring facilities up to standard 13

What If? Better business decisions start here Looking at $ effect of change in… Production Reproduction Udder Health Replacements Cost of Production Use multiple times with various options to find best plan of action

Looking at Possibilities Better business decisions start here With management changes…there is Hope! 15

The Process… Better business decisions start here Financial Statements Production Information Cropping Information Labor Information + Advisor Assistance + “What If” Options Increased Profits Better Decisions Useful Benchmarks

Some Results from Profit Profiler Better business decisions start here The information is from 135 dairies who supplied data with 2008 - 2011 year ends Ø Must have 20 herds to make a group. If not 20 available, then criteria expands until 20 Ø Some comparisons combine 2 + years Ø Dairies who use the program can have their data compared to any group available – multiple comparisons Ø Currently there are >15 groups to compare against. As more people use the program, we will be able to see differences between different management styles

Summary of Costs Better business decisions start here 2010 -11 (39 Herds) 25 -90 th PCTL Total Cow Costs 54. 7% 45 - 62% Cow Feed 24. 8% 18 - 29% Labor Heifer Cost 7. 8% 11. 5% 4. 5 - 8. 7% 8 - 13% (expressed as % of Milk revenue) Cost / heifer / yr $910 $626 - $1014 Forage Cost / Acre $446 $297 - $546 Milk Revenue /person $451, 695 Cost to make $1. 00 $. 791 $289, 682 - $735, 519 $. 66 - $. 85

Summary of Costs Better business decisions start here 2010 -11 (39 Herds) Total Cow Costs 54. 7% Cow Feed 24. 8% Labor Heifer Cost 7. 8% ” e g a r e 11. 5% v A “ is e l ? b s a n u a l l (expressed as % of Milk revenue) a p V g n w i o k a H m n he / yr Costw / heifer $910 25 -90 th PCTL $122, 050 45 - 62% Diff $78, 970 Diff 18 - 29% $30, 230 Diff 4. 5 - 8. 7% 8 - 13% $626 - $1014 $35, 700 Diff Forage Cost / Acre $446 $297 - $546 $44, 820 Diff Cost to make $1. 00 $. 791 $. 66 - $. 85 $153, 975 Diff Based on 100 cows

Comparison by Milk Prod’n 2010 -11 High (21 Herds) # Cows 219 Avg Milk Sold/Cow 10, 842 Better business decisions start here Low (20 Herds) 98 8, 123 54. 6% 59. 7% Cow Feed Cost 25. 6% 27. 3% Heifer Costs 11. 1% 11. 7% Total Cow Costs Cost to make $1. 00 $. 782 $. 847 Milk Revenue /person $480, 782 $280, 465 Total Investment /cow $33, 958 $23, 181 Total Debt / kgper Fat 100 cows $50. 88 vs $103, 329 $43. 50 $189, 494 Net Farm Income $414, 992 vs $101, 263

View of Costs by Prod’n Level Better business decisions start here The potential to help clients improve is amazing!

Summary Better business decisions start here q High Prod’n herds sold 2, 600+ more kg Milk /Cow q High Prod’n herds sold 9, 400 more kg Fat /Person q High Prod’n herds produced Fat @ $. 37 lower forage cost and $. 52 lower cost overall q High Prod’n Herds had a $. 07 less cost per $1. 00 of total revenue q High Prod’n Herds had 5. 73% return on investment vs 4. 25% for Low Prod’n herds ($4. 80 vs $3. 22 / kg) q Low Prod’n herds had lower cost /yr and total to raise heifers with similar results (%). However total 1 st lact milk Prodn’ was still significantly lower There is still a wide range in profitability within each group - Cow cost = +/- 3. 8% & 5. 4% from avg (high: low) - Cost / $1 = +/- 5. 3% & 6. 3% from avg

Comparison by Cost 2010 -11 Low (21 Herds) # Cows 226 Better business decisions start here High (20 Herds) 98 Avg Milk Sold/Cow 9, 568 9, 037 Total Cow Costs 49. 7% 66. 1% Cow Feed Cost 21. 7% 28. 9% Heifer Costs 9. 4% 13. 9% Cost to make $1. 00 $. 686 $. 966 Milk Revenue /person $464, 363 $266, 210 Total Investment /cow $27, 274 $33, 710 Total Debt / kgper Fat 100 cows $36. 82 vs $28, 627 $56. 57 $261, 946 Net Farm Income $591, 999 vs $28, 054

Cost Summary Better business decisions start here q Every measure for High Cost Herds was worse than Highly Efficient herds – except… q Invol Cull Rate was lower but this may have been because of longer Age @ 1 st Calving q Low Cost Herds had an overall greater return to ownership / investment – 10. 2% vs 3. 3% ROI q Profit difference of $591, 999 vs $28, 627 does not even cover principle payments for poor herds ($1. 9 M debt) There is a narrower range in profitability within top group compared to other comparisons = ? ? - Cow cost = +/- 2. 9% & 4. 1% from avg (low: high) - Cost / $1 = +/- 2. 8% & 4. 0% from avg

Take Home Message… Better business decisions start here q Range between dairymen shows potential that is available for improved profit. (50+% of avg) q Home Grown Feed costs - significant % of Costs q Feed Costs are ~50% of total “Milk Cow” cost q Labor is next greatest cost – must make it pay Good Management = More profit! q Using AVERAGE costs when planning changes is not a reliable measure – too much variation YOU NEED TO HAVE AN ACCURATE COST OF PRODUCTION FOR YOUR BUSINESS!

Who Should Use it? Better business decisions start here q Someone who is planning to make changes q Someone who plans to be in the business longer than 5 years q Someone who wants to know where they rank q They must be… Ø Willing to allocate expenses Ø Willing to “thoughtfully” provide data Ø Dairy owner or manager Ø Must sign Agreement of Use Ø Must be willing to pay for service…

How Does it Work? Better business decisions start here q Contact a certified advisor Ø All data must be checked by a certified advisor – for assistance and accuracy q Gather your information Ø Profit & Loss Statement, Balance Sheet, Milk Board statements, production, cropping and labor information q Make an appointment to fill out input form with advisor q Once processed, results will be explained q Log onto web program to do unlimited comparisons and “What If’s”

What Value is it to the Dairyman? q Seeing enterprises costs allows more informed management decisions Ø q Better business decisions start here Can now understand why certain enterprises may need to be reduced and outside purchases made Reports show results in ways that are not normally expected – which allows a better evaluation Ø Eg: Milk Produced vs Milk Sold /cow – identifies costs associated with long lactations Ø Eg: Labor measures allow you to compare cost and efficiency of labor force (2 nd greatest cost)

What Value is it to the Dairyman? q q Better business decisions start here Can see the operation from both financial and production viewpoint - Short & concise - only key items are shown Ø Having the overall business broken down into smaller “pieces” can help identify each enterprises strengths and opportunities to improve Ø Knowing where others are doing a much better job allows you to focus on what to work on 1 st Ø Use of the “What if” allows you to see which option give the best outcome Enhances communication with lender

Advisor Involvement Better business decisions start here q Each herd must be “vetted” by a certified advisor Ø All data must be checked accuracy Ø Offers assistance to producer in collecting info q Provides value added option to advisors Ø In addition to existing service package Ø Better understanding of dairy business q To be certified – training and licensing ($250 /person /yr) q Reduction in cost to advisor for “time” q Web based for convenience

Comments? Better business decisions start here 1. Do you think this is something that could be used to assist your dairy clients/ 2. How can you see this fitting into your business model? a) Promote it and DHI will work with dairyman b) Collect data and DHI gets results to dairyman c) Part of your client service package d) Variation of above…

Website Accessible Better business decisions start here Details on website… www. profitprofiler. ca or contact Thank you! Ph: (800) 549 -4373 Ext 254 Fx: (519) 824 -1330 profiler@canwestdhi. com.