This year has presented many challenges for our small dairy management, and over the years, we have seen at least two other dairies, who were in fact slightly bigger than us, go out of business suddenly and after only a few short years because of the challenges presented for direct-to-consumer dairies of our size.
Some of the management challenges we’ve faced in the last 18 months are below.
Drought and Feed Challenges
The biggest thing that has impacted our dairy business was the drought that took hold in spring 2021 and lasted through the 2021 hay growing season, only to abate with at or above normal rainfall since the start of August of that summer.
To feed our growing herd, we require at least 300 of our own 600 pound round bales of grass/clover hay or haylage from our certified organic fields, and then we would purchase a semi load of large square bales of organic second cut alfalfa/orchard grass hay. Hay season 2021 only afforded us a production of about 25 percent of normal production. This caused us to have to buy two and a half semi loads of hay at inflated prices. We were fortunate to have found good hay though, and had the means to bring it in from eastern Oregon.
This meant during the winter feeding season, hay consumed a bit over 25 percent of our monthly revenues, with labor consuming more than another 25 percent (more on this further in this post) of our monthly revenues.
Watching and maintaining operating margin when faced with such challenges is key to successful small dairy management.
Bottling Supplies and Management of the Supply Chain
Then there are all the other expenses of operating a small dairy. You should see the supplies we have to stay on top of, especially since we do our own bottling. We have all your normal dairy supplies and feed supplements, then for the bottle wash operation, we have automated brush heads that need frequent replacing, pre-wash detergent, wash detergent, and the bottles themselves, plus caps. The bottles are returnable glass bottles, but the return rate tends to run an industry average of 80 percent. So, for every hundred bottles shipped per day, 20 never come back.
Bottle screen printing lead times have nearly doubled as of this spring, and shipping has nearly tripled in cost, and shipping time is about tripled to quadrupled over what it used to be (bottles come from Ontario, Canada). This has led to logistical challenges managing inventory and lead times, and we have had to raise our bottle deposit twice to cover the cost of the bottles. Our goal is not to make profit on bottles, just to cover replacement costs.
We recently did a paid social media post encouraging bottle returns. With more and more milk heading out the door, we were finding returns weren’t even meeting the usual 78 to 80 percent return rate.
Shipping companies seem to be having a hard time getting good help. Yesterday, a new load of bottles arrived and it was clear there was a spill-over of one tall pallet of glass bottles and breakage had occurred. We have to be diligent in receiving because the shipper certainly doesn’t tell you this happened. We found 22 bottles of the 792 on the pallet were missing. We are careful to note this on the signed bill of lading and immediately report it to our bottle manufacturer for a credit against the outstanding invoice.
Today, we received notice that our load of bottle wash detergent set to arrive next week somehow got destroyed in transit. It is considered a hazardous material because it is very basic. On the pH scale, it is 13 to 14. I’m sure this made a nice mess in a trailer or warehouse somewhere, just like the broken bottles did.
Cow Health and Reproductivity
Being a dairy and working with live animals, the number one thing that affects productivity of the cows is keeping them “fresh”, which means healthy and calving on regular intervals (12 to 14 months being ideal),.
All our breeding is done with Artificial Insemination (AI). I am the guy who does the AI on the cows. We did a number of things last year that significantly improved our AI performance.
First, I chose to add more bulls into the lineup. For a milking herd of about 22 cows, I decided having at least 5 bulls in the (liquid nitrogen) tank was a minimum acceptable number. Second, I went and refurbished my skills by spending a day at a huge dairy (10,000 cows) in Sunnyside, Washington, training alongside the Select Sires (https://www.allwestselectsires.com/) technician who services that dairy. This was very kind of Select Sires to have allowed me to do that. Since I did that day, my skill has greatly improved, and we have finally achieved a very satisfying conception rate.
However, a lot of dairy cow fertility trouble isn’t a conception issue, but is more of a retention of the embryo issue. We actually find the biggest problem we have when cows come back into “heat” is that they conceived and dropped the embryo, called early embryonic death, or EED. We confirm all cows between day 28 and 30 post-breeding with a blood test called Biopryn (https://www.biotracking.com/about-biopryn/). When cows come back into heat within days of a blood test confirmation of pregnancy, or many times just after the second missed heat, it is because of early embryonic death. Some of the strategies we use to deal with EED are: multimin 90 injection to up critical minerals for embryo retention, switching the bull we use on that cow, addressing possible other nutrient or energy deficiencies, and ensuring the cow is in fact “clean” (ready to host her next embryo in the uterine environment). This latter point is sometimes self-resolving with the repeated heats continuing to clean them out. Sometimes we help them along by inducing ovulation with Lutalyse.
Another challenge to small dairy management has been inflation. I’ve already mentioned shipping costs massively increasing on bottles, but increased shipping cost and limited material availability has increased prices on most of the items we use in the business. Doing an across-the-item-list examination of our supplies and inventory, we see the average cost of everything has gone up.
To keep our employees happy, we have given two significant pay increases in the last 12 months.
To protect our minimum profit margin, we have increased our wholesale price on the products 3 times in the last 12 months, resulting in a wholesale price increase of 23 percent.
This past 12 months has seen us purchase 6 new Guernseys, all in milk at the time of purchase, and has also seen us calve in (freshen) 3 of our own heifers. This growth has caused us to hit record production and sales numbers, especially in the last several months. However, this necessitates really tightening down on quality control, supply chain management, and adjusting practices. For example, when we order glass bottles, or caps, even not considering the increased lead times and costs, we find we must order more just to keep up with the large increase in daily bottles going out the door.
As well, it has required us to more carefully manage stocking of our pasture sections and requires us to plan for the future more aggressively. A cow barn expansion is in the plans for summer 2023, and a commodity barn will absolutely be a necessity for the near future with all the stored feed, bedding, and equipment we now have.
The Numbers are Key to Small Dairy Management
Ultimately, small dairy management comes down to successful management of the numbers. There are a lot of numbers to manage.
There are the profit and loss numbers.
There are the payroll numbers.
There are the cow statistics numbers: days open, days in milk, average AI tries, pregnancy count per bull, average days lactation, average production in pounds per day per cow, number of half gallons and quarts going out the door every day. Lead times and burn rates on bottles, caps, detergent, nitrile gloves, baking soda, salt, minerals, certified organic grain (fed in the milking parlor), hay bale inventory, bottle inventory, cap inventory, semen inventory (which also has a long lead time), and the list goes on.
Each subheading topic could be covered in much more detail and maybe I’ll do each in a future post.
One thing I have learned, not doing this for 11 years, I and my wife and family are all well-suited for the job. We thank the Lord every day for the opportunity to do this together, and to be successful.
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