Figure 13 Cost of Producing Milk by Profit Groups

Interestingly, some of the most profitable farms, at least on a per cow basis, were found at both the high end and at the low end of herd sizes. The large herd dairy farms were able to capitalize on economies of scale, while some of the small herd farms were able to keep a tight rein on expenses, had significant non-milk business income, and utilized a significant amount of family labor. There were farms from all four size categories represented in the top profit quartile.

Another area where the top profit group excels is in NCOP. Figure 13 shows the difference in the cost of producing milk between the most and least profitable groups. The difference between the two came to $3.66 per cwt. in 2020, significantly greater than the average difference of the preceding five years.

NCOP1

Bottom 25% Top 25% Difference

1 Before any return on equity

2016 2017 2018 2019 2020

Dollars per Cwt.

$18.39 $18.92 $18.67 $18.77 $20.12 15.96 16.23 16.57 16.81 16.46 2.43 2.69 2.10 1.96 3.66

Certainly, high milk production per cow influences profitability. However, Figure 14A illustrates that by itself, high production per cow does not guarantee superior earnings. A significant number of high production farms are in the lower profit groups. However, fewer of the low production farms fall in the top profit group.

The importance of balancing production with total costs to achieve profitability is much more obvious (Figure 14B). As NCOP decreases, the possibility of higher profits increases on nearly a straight line. Herd management, cost control, purchasing savvy and labor management are the main factors determining the cost of production.