Editor’s note: The following is a question-and-answer roundtable with progressive dairymen, nutritionists, veterinarians and other selected dairy staff members at Form-A-Feed Inc. and TechMix Inc.

The sharp downturn of the economy is hitting every sector, including agriculture. So it’s natural for dairy producers, like all business owners, to scramble and look for ways to shore up revenues while cutting expenses. But dairy operations have long production cycles, stretching over months and years. Make the wrong cut or management change now, and it could take several years for your operation to recover from it.

The staff members of two companies in Stewart, Minnesota, regularly talk to a large cross-section of dairy producers. They’ve heard a lot of the same concerns from dairies all over the country: What can we cut? How do we set priorities? Should I cull my herd? What makes sense and what doesn’t? This has sparked a lot of discussion about what management practices you can adopt now that will still make sense (and you won’t regret) a year or two from now.

Prioritizing: How and what do you cut?
First recommendation: Don’t make knee-jerk decisions. Make a priority list instead. Review the systems throughout your dairy. Look at reproduction, milk quality, feeding strategies, feed inventory management, culling and replacements, labor, equipment and so on. Look for opportunities to simplify and streamline operations to reduce costs. Find better ways to do things than your current practices. Is your feeding system really efficient; can you further reduce shrink? Can you get more value from manure? Is your labor efficient? Can you improve parlor throughput and efficiency?

Focus on the big numbers. A key component of management is to start with the high-dollar costs. This applies to each system and within each system as well. For example: Don’t focus on minor feed costs at the risk of compromising health, but start with feed inventory and purchased feed as your largest dairy costs (along with the asset value of the cows.) Tighten up on feed ingredient shrink and improve bunk management refusal. This starts from purchase delivery to refusal removal.

Motivation: Revenues or costs?
Ask yourself if your dairy is revenue-driven or cost-driven. That may be an odd question, but you need to answer it: Can you produce more milk? Can you cut costs? Can you do both?

To aid your decision-making process, use partial budgeting and understand marginal thinking. Partial budgeting, simply put, calculates the changes in income and expenses that would result from implementing a specific change in your operation. (It’s “partial” because it only includes resources that will be changed. Partial budgeting doesn’t consider business resources that are left unchanged.) A quick Google search of “partial budgeting” will yield some excellent ag-related resources (dairy partial budgeting). A very simple example might be: “If my (specific change) improves dry matter intake by 1 pound at X cost, and my milk production improves by 2.25 pounds per cow at Y price, then the change results in a certain amount of improved or reduced margin.”

Also, challenge your priority list: “Will this short-term savings hurt long-term revenue?” Some examples of this might be sacrificing good reproduction practices or making the decision to not feed a toxin binder knowing that you have a mycotoxin problem. Remember that milk is paying most of the bills now. Maintaining production and cow efficiency is even more critical now than when milk prices are positive.

Negotiation: What can’t be cut no matter what?
What is non-negotiable is a determined attitude that the sound business decisions you’ve previously made for the dairy should not be abandoned now. Some systems take a long time to repair and restore once they are “broken” by quick fixes. If reproduction, for example, suffers in the short-term, milk production will likely be lower when positive milk prices return because days in milk (DIM) will be elevated at the dairy. You won’t be able to recover by “making hay when the sun shines.”

Milk quality has a direct impact on health and income. A short-term saving from eliminating teat dip or making shortcuts in milking procedure may temporarily save costs. But in the long-term, they can create somatic cell count (SCC) and mastitis issues that won’t go away overnight, and they will take more premiums out of your paycheck.

Another example is transition programs. Cheating on transition cows only means added expense and poor cow performance at a time when you can least afford increased vet bills, cow mortality and lower milk production.

Culling and replacement: What’s the sensible approach?
Culling might be your number one decision. Consider your culling and replacement systems, and ask yourself if they’re healthy enough to strategically weather an economic downturn. If ample replacements exist, harder culling of the bottom-end would be a superior alternative to “cutting” items or systems that may result in reduced milk production or hurt cow performance long-term — both of which would reduce future milk revenue.

Some suggestions: Don’t hold “lazy cows” – cull harder and strategically replace them. Cull low producers not making their maintenance costs in milk production. Take that revenue and maintain inventory by purchasing short bred heifers that will calve when milk prices are likely to rebound. Also, improve cow comfort. Overcrowding your facilities, especially during low milk prices, only increases total variable costs, and potentially reduces the output performance of your true cash cows. Every facility is different so you need to look at this carefully.

Stay objective in down times
It’s crucial to keep your cool. Look at situations and make decisions objectively, based on the data available – not on emotion. (If you don’t have data for a specific decision, that might be a sign that you need to start collecting some data in that area.) Remember why you chose the feed and other management practices you’d been following before the economic downturn. Why was the rationale sound a year ago? Is the rationale for changing those practices now just as sound?

Be sure to use your team: Talk to the nutritionists, vets, lenders, reproduction companies and everyone else who have helped make your dairy a success in the past. Dig into their experience, ask for recommendations and brainstorm ways to improve their part of your operation.

Most importantly, keep the big picture in mind. Remember that you need to be ready to take advantage of the market upturn when it comes — and it will! PD

For more information call Dan Kohls at (612) 916-6429 or send an e-mail to articleinfo@formafeed.com