The Florida Dairy Business
(Acrobat version)

Volume 3 Issue 2

The mailbox milk price at the UF Dairy Research Unit (DRU) fell $.80 in January compared to December 1997. The Basic Formula Price (BFP) rose $.13 from October to November 1997 (remember Class I prices are based on the BFP two months earlier).

The actual Co-op premium realized by the DRU was $.73 lower than in December. This is why the graph at the left breaks downward so sharply for January 1998. Other differences in price are because of market utilization rates of Class I and Class II milk, butterfat test, etc.

Florida mailbox prices should increase in February because of the $.33 jump in the December 1997 BFP and steady Co-op premiums. Mailbox prices for March should be close to those for February, because, while the January BFP fell $.04, the announced Co-op premium will increase by the same amount. See graph at  left and table below for the numbers.

We have decided to monitor mailbox milk prices in selected locations (see below). With all the discussions about Federal Order reform and Class I differentials, it is informative to know what prices are in other locations.

Some of these locations have lower utilization rates and can be considered alternative sources of milk for processors. Therefore, we computed a difference between Florida mailbox prices and prices at the other locations. As research, experimentation, and implementation of concentrating milk with ultrafiltration, reverse osmosis and other technology increases, knowing the realized price differences at different locations is even more important.

At the left-below are the trends in cow numbers and total milk production in Florida over the past two years. Cow numbers have been relatively steady after the increase during the high milk prices of the second half of 1996. In January 1998, Florida had 5,000 more cows than two years ago but 2,000 less than March 1997.

Milk production was down significantly (11%) in January 1998 compared to January 1997, but January 1997 was up 10% from January 1996 because of favorable fall and winter weather for milk production. Production per cow in January 1998 is lower than the same month two years ago. Total production was down about 1% from two years earlier on 3% more cows.

-Michael DeLorenzo

Improving the Bottom Line

A common goal for dairies across the state is improving the "bottom line". The size of the bottom line, or profits, directly affects the profitability of a business.

Profitability is defined as the rate at which profits are generated from invested capital. A widely accepted and commonly used measure of profitability is the rate of return on assets (ROA). ROA is defined as net farm income (NFI) plus interest on debt, minus a $50,000 charge for unpaid management, divided by average total assets. The following table lists the results of 1996 for a sample of Florida dairies on the Dairy Business Analysis Project. Dairies are grouped by ROA.

Several things should jump out at you when looking at this table. First is the large number of dairies in the high profitability group (ROA >9%) which reflects the record-high milk prices in 1996. The next thing I hope that grabs your attention is the large difference in total expenses per cwt. milk sold across groups.

The high profitability group had total expenses $0.83 per cwt. milk sold lower than the middle profitability group (1-9% ROA) and $3.59 lower than the low profitability group (<1% ROA). The top profitability group made $0.19 more per dollar invested than the low profitability group, which lost $0.03 per dollar invested in 1996. Higher production per cow magnified the results of good cost control which show up in the operating profit margin.

The operating profit margin shows what portion of each dollar of gross revenue was profit. For each dollar of revenue, the top group made $0.17 profit, the middle group averaged $0.09, while the low group lost $0.02. That’s a 950 percent difference between the high and low profitability groups!

So what does all of this mean? Those dairies which keep their costs per cwt. milk sold low tend to increase ROA. Differences in milk prices are not the cause of differences in profitability. This is evident by the low profitability group having the highest total revenues per cwt. milk sold. Evaluate your operation and see what areas of cost control are not being effectively practiced and spend the time to take corrective action. Contact your extension agent and join the Dairy Business Analysis Project to find out where those areas are and how your business measures up to other dairies across the state. Keep your dairy business out of the low profitability group by improving "the bottom line."

-Marvin Hoekema

May 5, 1998

The conference will again be held at the Radisson Hotel Gainesville. A program and registration form were mailed separately to you. Be sure to register early to take advantage of the lower fee for early registration. Some of the program features this year are:

Dr. Ray Nebel, Virginia Tech University, will give two talks on reproduction. One will emphasize heat detection methods and the other the timing of insemination.

Carl Theunis, a dairyman from Kaukana, Wisconsin, will give a talk on labor that many people in other regions have heard and said is outstanding.

Dr. Michael DeLorenzo from our department will report on the financial performance of Florida dairies. This will also be an update of the Dairy Business Analysis Project.

Dr. Norbert Jaworski, retired from the EPA, will give an analysis of nutrient loadings in river watersheds that contribute to water quality. His data set is from rivers draining into the Chesapeake Bay but the principles fit our rivers, e.g., the Suwannee, very well.

Other talks on protein nutrition, gossypol from cottonseed, and laminitis will be given by UF faculty. The Florida DHIA meeting and the awards program will follow the luncheon.

A field day/seminar is planned for May 21, 1998 at North Florida Holsteins Dairy (NFH) near Bell, Florida to report on Florida DEP-supported research done there by the UF Agronomy Department on multiple cropping programs to recycle dairy manure nutrients. Registration will begin at 9:00 AM, with the program beginning at 9:30. Following several presentations, the group will take a tour of the field plots and return to the presentation area for lunch followed by a panel question and answer period.

The program is aimed at providing current information on cropping programs that can be used by dairymen, consultants, and others to help recycle dairy manure nutrients in an environmentally safe and beneficial manner. Current information on dairy animal waste management, findings on crop management under dairy effluent, and the management of dairy manure in the context of today’s regulations are some of the topics to be addressed.

Cooperating agencies/institutions include the following: Florida Department of Environmental Protection, Natural Resource Conservation Service, Suwannee River Water Management District, Florida Department of Agriculture and Consumer Services, Suwannee River RC&D Council, and various departments of the University of Florida (Cooperative Extension Service, Dairy and Poultry Sciences, Ag and Bio Engineering, Soil and Water Science, and Agronomy).

For more information, please contact Tito French at (352)392-1811 or ecf@gnv.ifas.ufl.edu.