I am fairly certain I have written an article with the same title as this, only it was 20 or more years ago. And although today is a different day, the story is the same. Pasture was and still is the most cost-effective and profitable means by which an animal can be fed. And yes that includes lactating dairy cows. No machine can harvest a ton of forage cheaper than an animal can through grazing. And with the ever-increasing cost of diesel fuel, not to mention the machines that swallow it by the gallon, or the cost of labor to operate the machinery, the more self-evident this is.
Before fossil fuels, tractors, and computerized ration balancing programs came along, all livestock were grazed. It made no sense to tie an animal to a tree and hand pull or cut and carry food to the critter; even if the numbers were few. Time was valued as a currency and labor was a commodity in short supply, and neither could be wasted on doing something an animal could do for itself. Pasture was unquestionably the food of choice. Although modern agricultural methods based on feeding animals in confinement have allowed for the unprecedented production of meat, milk, and fiber to occur, there is more to profitability than just how much product is produced. In fact, in the low margin business that most of agriculture has become, producing less may well return a greater profit to the farm so long as the cost of production is also less.
For example, suppose you are a confinement-based dairy farmer with a herd of 100 cows making 20,000 pounds of milk/ cow/yr. On your farm the production costs to produce 100 pounds of milk (CWT) average $14.50. The good news is you are lucky enough to be paid $15.50 a (CWT). To calculate your profit you need only subtract the production cost from the price received. In other words your profit per CWT is $15.50 – $14.50 = $1.00 a CWT. On your herd of 100 cows producing 20,000 CWTs a year, your profit is $20,000. (The first time I did this analysis, I used data from a fairly well known dairy farm business summary. The numbers represented the 5 year averages from 2000 – 2005. At that time, the profit per CWT averaged 10 cents/CWT.)
So what happens if $20,000 is not enough money to live on so you decide to increase your production by 10%? Now you are producing 22,000 CWTS of milk. With the same production costs and price received, you are still making a $1.00 a CWT profit. However you now have 2,000 more CWTs to sell, thus your profit increases by 10% or $2,000 dollars to $22,000.
But what happens if you wake up some morning and say to yourself, “self, there is something wrong with this picture. I work 16 hours a day 7 days a week on this farm and someone else is getting to keep 93.5% of my milk check.” So rather than continue to expand your herd size or produce more milk per cow, you decide to lower your costs of production by 10% rather than increase production? $1.45 is 10% of $14.50. Subtracting $1.45 from $14.50 gives you a new cost of production of $13.05 a CWT. When you subtract $13.05 from $15.50 your profit per CWT is now $2.45. When you multiply the 20,000 CWTS of milk by $2.45 you get $49,000.
While increasing production by 10% did increase profit by $2,000, decreasing production costs by 10% increased profit by $29,000. All things equal, to obtain the same profit as decreasing production costs by 10%, the 100 cow dairy would have to expand production by 145%, or in other words, increase their herd size from 100 to 245 cows.
I should add that I recently spoke at a grazing meeting in Brussels, Ontario. For that meeting of beef producers, I put together a similar example using a beef cow/calf operation. In that example of a 50 cow farm, increasing herd size by 10% improved profit by $94.00. Decreasing production costs by 10% increased profit by $4590.
Pasture is the lowest cost food that can be fed to livestock. The more it is fed, the lower the cost of production. And with lower production costs, more of the money earned on a farm gets to stay on the farm in the hand of the farmer, where it can be spent on things other than a high cost production system
Pasture: Graze it for all its worth!
Darrell,
Cutting costs is never recognized for its simplicity.
We have been led to believe increasing production is the way to improve profit. What is ignored as you brought out is net profit. Concentrating on gross profit leads people in the wrong direction. Net profit is what we take to the bank.
Darrell, good read your name! Nice article, says it all.