A Benchmarking Tool That Allows More Effective Decisions

1. A Benchmarking Tool That Allows More Effective Decisions W.J. (Bill) Grexton Manager, Herd Management Services, CanWest DHI 660 Speedvale Ave W, Guelph, N1K 1E5 (519) 824-2320 ext 254; Email: bgrexton@canwestdhi.com

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

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

4. Basic Principles of Program 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

5. Basic Principles • Combines financial and physical information to provide benchmark results • 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) • Need to know what each enterprise contributes to overall profit • Calculates a true cost of “home grown feeds” • Compare to & rank against other similar dairy businesses • Uses their own costs to project “What If” scenarios • Advisor assistance to help collect info and discuss results

6. Reports – 3 Viewpoints Business to Business Enterprise Cost of Prod’n Prod’n & Investment Values

7. What Do You Measure? Purch. Feed Cost $ / Cow $850 Holstein Jersey Holstein (3.7:3.4) $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) 9,455 (3.7:3.4) $.727 /L; $19.13 /kg $.908 /L; $17.46 /kg $.733 /L; $19.81/kg - Ontario pricing

8. Report Outline

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

10. Forage Costs Evaluating the Enterprises… Next, Look at the 4 Enterprises

11. Evaluating the Enterprises… How do they go together? Less / heifer + more total = extra animals or lower revenue

12. Comparing Physical Parameters Top 10 in $ /Acre But Poor Yield = Higher Cost /Cow

13. Comparing Physical Parameters 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

14. What If? 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

15. Looking at Possibilities With management changes…there is Hope!

16. Useful Benchmarks Increased Profits The Process… Financial Statements Production Information Cropping Information Labor Information + Advisor Assistance + “What If” Options Better Decisions

17. Some Results from Profit Profiler The information is from 135 dairies who supplied data with 2008 - 2011 year ends • Must have 20 herds to make a group. If not 20 available, then criteria expands until 20 • Some comparisons combine 2 + years • Dairies who use the program can have their data compared to any group available – multiple comparisons • 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

18. Summary of Costs 2010-11 (39 Herds) 25-90th PCTL Total Cow Costs 54.7% 45 - 62% Cow Feed 24.8% 18 - 29% Labor 7.8% 4.5 - 8.7% Heifer Cost 11.5% 8 - 13% (expressed as % of Milk revenue) Cost / heifer / yr $910 $626 - $1014 Forage Cost / Acre $446 $297 - $546 Milk Revenue /person $451,695 $289,682 - $735,519 Cost to make $1.00 $.791 $.66 - $.85

19. Summary of Costs 2010-11 (39 Herds) 25-90th PCTL Total Cow Costs 54.7% 45 - 62% Cow Feed 24.8% 18 - 29% $122,050 Diff $78,970 Diff $30,230 Diff Labor 7.8% 4.5 - 8.7% Heifer Cost 11.5% 8 - 13% (expressed as % of Milk revenue) Cost / heifer / yr $910 $626 - $1014 Forage Cost / Acre $446 $297 - $546 Cost to make $1.00 $.791 $.66 - $.85 How Valuable is “Average” when making plans? $35,700 Diff $44,820 Diff $153,975 Diff Based on 100 cows

20. Comparison by Milk Prod’n 2010-11 High (21 Herds) Low (20 Herds) # Cows Avg Milk Sold/Cow 219 10,842 98 8,123 54.6% 59.7% 25.6% 27.3% 11.1% 11.7% Total Cow Costs Cow Feed Cost Heifer Costs Cost to make $1.00 $. 782 $.847 Milk Revenue /person $480,782 $280,465 Total Investment /cow $33,958 $23,181 Total Debt / kg Fat $50.88 $43.50 per 100 cows $189,494 vs $103,329 Net Farm Income $414,992 vs $101,263

21. View of Costs by Prod’n Level The potential to help clients improve is amazing!

22. Summary • High Prod’n herds sold 2,600+ more kg Milk /Cow • High Prod’n herds sold 9,400 more kg Fat /Person • High Prod’n herds produced Fat @ $ .37 lower forage cost and $ .52 lower cost overall • High Prod’n Herds had a $ .07 less cost per $1.00 of total revenue • High Prod’n Herds had 5.73% return on investment vs 4.25% for Low Prod’n herds ($4.80 vs $3.22 / kg) • Low Prod’n herds had lower cost /yr and total to raise heifers with similar results (%). However total 1st 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

23. Comparison by Cost2010-11 Low (21 Herds) High (20 Herds) # Cows Avg Milk Sold/Cow 226 9,568 98 9,037 49.7% 66.1% 21.7% 28.9% 9.4% 13.9% Total Cow Costs Cow Feed Cost Heifer Costs Cost to make $1.00 $. 686 $.966 Milk Revenue /person $464,363 $266,210 Total Investment /cow $27,274 $33,710 Total Debt / kg Fat $36.82 $56.57 per 100 cows $261,946 vs $28,627 Net Farm Income $591,999 vs $28,054

24. Cost Summary • Every measure for High Cost Herds was worse than Highly Efficient herds – except… • Invol Cull Rate was lower but this may have been because of longer Age @ 1st Calving • Low Cost Herds had an overall greater return to ownership / investment – 10.2% vs 3.3% ROI • Profit difference of$591,999vs$28,627does 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

25. Take Home Message… • Range between dairymenshows potential that is available for improved profit. (50+% of avg) • Home Grown Feed costs - significant % of Costs • Feed Costs are ~50% of total “Milk Cow” cost • Labor is next greatest cost – must make it pay Good Management = More profit! • 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!

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

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

28. What Value is it to the Dairyman? • Seeing enterprises costs allows more informed management decisions • 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 • Eg: Milk Produced vs Milk Sold /cow – identifies costs associated with long lactations • Eg: Labor measures allow you to compare cost and efficiency of labor force (2nd greatest cost)

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

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

31. Comments? • 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? • Promote it and DHI will work with dairyman • Collect data and DHI gets results to dairyman • Part of your client service package • Variation of above…

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