News / Blog

What is the Cost of a Dairy Operation?
July 18, 2016

The dairy industry as with any commodity deals with the peaks and valleys of the markets. Other commodities are in a similar situation as the dairy operation and to stay in business they have to know their cost of production.

They are constantly monitoring their business’s performance so changes can be made quickly to compensate for a downturn. It can be depressing when the current income over feed cost is less than the breakeven number. Instead of focusing on how to cut costs, many times to the determent on animal performance, focus on making adjustments that improve upon what is already being done. Many times it is honing in on a small detail that can make a significant impact on milk income.

Production Perspective

The Extension Dairy Business Management Team has been working intensively with a group of dairy producers over the past three years. There are some basic management practices that keep coming to the surface on herds that maintain a competitive margin. These operations have positioned themselves to weather the market “storms” and even during tough years like 2016, they can bounce back fairly quickly when the market rebounds. Below are some management areas to investigate for possible improvements.

When the dairy team has been evaluating a producer’s corn silage, one question keeps coming up: is it really being processed? In our project, all our producers except one stated that their corn silage was processed. However, visual appraisals showed otherwise. It was evident on some farms that whole kernels were present. Regardless if corn silage is harvested by the producer or a custom harvester, don’t assume that it is really being processed. The research and field results show a milk production response when kernels are properly processed. Equipment adjustments can be made to correct the problem.

This probably sounds like a broken record, but monitoring dry matters daily or weekly on high moisture feeds does pay off. On our project, herds incorporating this management practice are showing improved milk production and income over feed costs compared to their counter parts not implementing this practice. The investment in a microwave oven, scale, or another alternative is usually very small. However, the payback can be substantial in improved animal performance because cows are more likely receiving a consistent ration.

Another aspect of feed management is monitoring dry matter intake. This simple practice is almost as elusive as knowing a farm’s cost of production. There really is no excuse for not monitoring dry matter intake in herds feeding a total mixed ration (TMR). This is a barometer to determine the status on fresh cows, first lactation animals, high producing and late lactation cows. Herds implementing this practice are showing a financial and production benefit versus the producers not monitoring intakes.

Many farms have a feed mixer along with a software package that can track this information. However, even on farms without this added technology, it is worth the time to record batch weights and occasionally weigh refusals. If the farm is doing dry matters on the individual forages, including the TMR should not overwhelm the system. Entering the information into a spreadsheet and evaluating it will provide a wealth of information about what is happening in the herd.

Management is ultimately the key to surviving these tough times. It is attention to details that help dairy operations maximize performance and efficiency of the herd. The biggest hurdles are making practices a priority and ensure they get done routinely.

Action plan for improving milk income.


With a team of advisors evaluate areas on the farm that can be improved so a plan can be developed, implemented and monitored.


  • Step 1: Review current data on herd performance, income over feed cost and management practices. Examine areas that can be improved.
  • Step 2: Discuss findings with the farm employees and get feedback on their ideas and suggestions.
  • Step 3: With the appropriate advisors, examine the current situation and evaluate the potential impact changes will have on production and financials.
  • Step 4: Implement and monitor all changes. Provide feedback to the employees and listen to any suggestions or comments they may have on improvements.


Economic perspective

Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows income over feed costs is a good way to check that feed costs are in line for the level of milk production. Starting with July’s milk price, income over feed costs was calculated using average intake and production for the last six years from the Penn State dairy herd. The ration contained 63% forage consisting of corn silage, haylage and hay. The concentrate portion included corn grain, candy meal, sugar, canola meal, roasted soybeans, Optigen (Alltech product) and a mineral vitamin mix. All market prices were used.

Also included are the feed costs for dry cows, springing heifers, pregnant heifers and growing heifers. The rations reflect what has been fed to these animal groups at the Penn State dairy herd. All market prices were used.

Income over feed cost using standardized rations and production data from the Penn State dairy herd.






Note: June’s PSU milk price: $15.56/cwt; feed cost/cow: $5.83; average milk production: 83 lbs.

Feed cost/non-lactating animal/day.

Feed_Cost Non Laction



Source –


Summer 2018