Lee’s idea: As an economist working in dairy I like to start with IOFC (Income Over Feed Cost) when looking for profit. It’s the power equation of (Milk Price x Milk Sold - Feed Cost) and just happens to include the three factors most in a dairy producer’s control. Knowing IOFC on a daily or weekly basis keeps a key profitability measure front and center, and be helpful when making decisions on marketing milk, buying feed, and making cow management decisions.
Walt weighs in: So right now you might be thinking — “great, I’d like to monitor this, but I don’t know how”. How do I proceed?
Lee, put on the spot and being a smart-aleck and shameless self-promoter says:
- Take today’s near-month Class lll futures price, add or subtract your dairy’s average basis for this month, multiple that times the pounds of milk per cow you shipped today, and subtract from that today’s average cost to feed your milking and dry cows. Convert that to the CWT equivalent and there’s your IOFC per CWT.
- Or do it the easy way. Download our free FYP Consulting’s Dairy app. It's right here: GET THE APP
Dave, being the voice of reason offers this: If a dairy can stay out of the ditches and head pretty much down the middle of the road they will make steady progress. A measurement can be used effectively if it is persistently, consistently and honestly evaluated and then reevaluated and adjusted with the knowledge of what has worked well in the past.
So, IOFC is a number that if calculated the same each week and if overall profitability is consistently and critically measured these two could do much to get the dairy further down the road and out of the ditches. Changes need to be methodical with a clear standard to measure success.
And Robin will not be left out: Producers do the best job of managing price risk when they are confident of their cost of production. Monitoring IOFC is a good start but I’d recommend they learn their true cost of production and choose marketing strategies based on that number.
Our cast of characters from FYP Consulting:
Lee Gross - Economist
Walt Ogburn - People Development
Dave Prigel - Vet Diagnostics
Robin Schmahl - Risk Management