1. Better business decisions start here 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. Better business decisions start here 2 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 That is Profit Profiler’s role…

3. Better business decisions start here 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. Better business decisions start here 4 Basic Principles of Program To Benchmark Key Measures and Answer Questions Goal: To show strengths and opportunities for improvement 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? + +

5. Better business decisions start here 5  Combines financial and physical information to provide benchmark results  To link cow, crop & labor performance to financial values Basic Principles  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. Better business decisions start here 6 Reports – 3 Viewpoints Business to Business Enterprise Cost of Prod’n Prod’n & Investment Values

7. Better business decisions start here 7 What Do You Measure? $ / Cow $850 Holstein Jersey Holstein (3.7:3.4) Holstein Jersey Holstein (3.7:3.4) $ / HL $8.99 $11.44 $9.25 $ / kg Fat $2.30 $2.18 $2.50 $ / Milk Rev $.124 $.125 $.126 $725 $875 Purch. Feed Cost 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. Better business decisions start here 8 Report Outline

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

10. Better business decisions start here 10 Forage Costs Next, Look at the 4 Enterprises Evaluating the Enterprises…

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

12. Better business decisions start here 12 Top 10 in $ /Acre But Poor Yield = Higher Cost /Cow Comparing Physical Parameters

13. Better business decisions start here 13 Heifers calving later and giving less milk Comparing Physical Parameters 25% less cows and 33% less components sold = 40% less revenue Less investment = further to go to bring facilities up to standard 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?

14. Better business decisions start here 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. Better business decisions start here 15 Looking at Possibilities With management changes…there is Hope!

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

17. Better business decisions start here 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. Better business decisions start here 18 Summary of Costs 2010-11 (39 Herds) 25-90 th 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. Better business decisions start here 19 Summary of Costs 2010-11 (39 Herds) 25-90 th 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 Cost to make $1.00 $.791 $.66 - $.85 $78,970 Diff $30,230 Diff $35,700 Diff $44,820 Diff $122,050 Diff $153,975 Diff Based on 100 cows How Valuable is “Average” when making plans?

20. Better business decisions start here 20 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 Comparison by Milk Prod’n 2010-11 # Cows Avg Milk Sold/Cow 98 8,123 Low (20 Herds) 219 10,842 High (21 Herds) Net Farm Income $414,992 vs $101,263 per 100 cows $189,494 vs $103,329 Total Cow Costs Cow Feed Cost Heifer Costs 54.6% 59.7% 25.6% 27.3% 11.1% 11.7%

21. Better business decisions start here 21 View of Costs by Prod’n Level The potential to help clients improve is amazing!

22. Better business decisions start here 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 1 st 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. Better business decisions start here 23 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 Comparison by Cost 2010-11 # Cows Avg Milk Sold/Cow 98 9,037 High (20 Herds) 226 9,568 Low (21 Herds) Net Farm Income $591,999 vs $28,054 per 100 cows $261,946 vs $28,627 Total Cow Costs Cow Feed Cost Heifer Costs 49.7% 66.1% 21.7% 28.9% 9.4% 13.9%

24. Better business decisions start here 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 $591,999 vs $28,627 does 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. Better business decisions start here 25 Take Home Message…  Range between dairymen shows 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. Better business decisions start here 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. Better business decisions start here 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. Better business decisions start here 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 (2 nd greatest cost)

29. Better business decisions start here 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 1 st  Use of the “What if” allows you to see which option give the best outcome  Enhances communication with lender

30. Better business decisions start here 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. Better business decisions start here 31 Comments? 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… 1.Do you think this is something that could be used to assist your dairy clients/

32. Better business decisions start here 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