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An analysis of Cargill, Inc.'s California dairy nutrition program

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Title:
An analysis of Cargill, Inc.'s California dairy nutrition program
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Teaching and learning paper series
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Carranza, Rodrigo J
University of Florida -- Food and Resource Economics Dept
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Gainesville Fla
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University of Florida, Institute of Food and Agricultural Sciences, Food and Resource Economics Dept.
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Subjects / Keywords:
Dairying -- Economic aspects ( lcsh )
Animal nutrition -- Case studies ( lcsh )
Dairy cattle -- Feeding and feeds ( lcsh )
Dairy cattle -- Nutrition ( lcsh )
Dairy farms -- Economic aspects ( lcsh )
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bibliography ( marcgt )
non-fiction ( marcgt )

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Bibliography:
Includes bibliographical references (p. 30).
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Cover title.
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"June 2001"--Cover.
Statement of Responsibility:
by Rodrigo J. Carranza ... [et al.].

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Full Text



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An Analysis of Cargill, Inc.'s California Dairy Nutrition Program
By
Rodrigo J. Carranza, Gary F. Fairchild, Richard L. Kilmer, and P.J. van Blokland*
Abstract: This paper provides an analysis of Cargill, Inc.'s Animal Nutrition Division and their attempts to make a paradigm shift in their dairy feed business in California, based on the experience of an internship. The case includes a company and divisional overview, a California feed Market analysis, a S.W.O.T. analysis of Cargill's Pacific Cost District, and an internship project on dairy-feed program profitability.
Key words: Cargill Animal Nutrition, California dairy-feed market, nutrition consulting and technology, dairy profitability
*Rodrigo J. Carranza is a former Master of Agribusiness graduate student and Gary F. Fairchild, Richard L. Kilmer, and P.J. van Blokland are Professors in the Food and Resource Economics Department, College of Agriculture and Life Sciences, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, Florida
Opinions and perspectives expressed in this paper may or may not represent the views of others, particularly the management of Cargill, Inc.




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INDEX
page
Cargill, Inc., Company Overview..................................................1.
The California Dairy Feed Market................................................... 4
Cargill Animal Nutrition-Dairy Focus Group......................................... 8
The Pacific Coast District-Strategic Business Unit Analysis .......................... 9
S.W.O.T. Analysis of Cargill Animal Nutrition Division's Pacific Coast District ......13 Observations and Recommendations.................................................21
Internship Project ..................................................................22
Why is feed cost per hudredweight an important measure?9....................25
References ......................................................................... 30
Appendix A........................................................................ 31
Appendix B........................................................................ 32







An Analysis of Cargill, Inc.'s California Dairy Nutrition Program
Camill, Inc. Company Overview
Cargill Inc. is the largest privately held company in the world. It has been in business for 135 years and manages to remain dynamic and at the forefront of the industries in which it participates. It ranks fourth among the nation's top food companies. Only outranked by Philip Morris Companies Inc., ConAgra, and PepsiCo. Cargill is a truly global company that markets, processes and distributes food, agricultural, industrial and financial products and services in 60 countries (see Figure 1). The company employs about 85,000 people worldwide and has 6 business sectors: Agriculture, Food Processing, Industrial, Trading, Financial Markets, and Joint Ventures. These different businesses make it a $7.46 billion dollar company (net worth), with sales of $47.6 billion and a net profit of $480 million in the year 2000.
One of its top performers is the Animal Nutrition Division (AND) under the
Agriculture Sector. The Animal Nutrition Division provides feed and consulting services service in nutrition and management to livestock farmers and pet owners around the globe. Cargill produces these feeds at 130 plants in 18 different countries in North America, Latin America, Europe and Asia. It produced 6.5 million tons of feed worldwide, earning them $1.6 billion in sales and $46 million in after-tax earnings for the year 2000. They also show $660 million in annual gross investment and a 13.2% ROGI (Return on Gross Investment). Cargill Animal Nutrition has had 15 years of continuous growth including the year 2000. Their strategic intent is to become the "Biggest and Best




Animal Nutrition Company in the World". This is evident in the philosophy and strategy changes they have made in resent years and the ones they propose for the years to come.
Just recently, they acquired Agribrands International, Inc., the marketer of Ralston Purina products outside the United States, for $54.5 per share in cash, for an equity value of about $580 million. With this acquisition, Cargill Animal Nutrition will expand its international market for pet foods and will now have two of the biggest animal-feed brand names, Purina and Nutrena, as part of its product portfolio. The two businesses together will operate 176 plants in 26 countries and employ 9,500 people worldwide.
The Animal Nutrition Division (AND) in the United States is divided into 15 different districts (see Figure 2). Each district has a different focus depending on the markets they serve. One of the district s with the highest tonnage production is the Pacific Coast District which services Washington, Oregon, California and Nevada. This district has a strong dairy and poultry focus. During the 1999-2000 fiscal year, the Division produced 37,000 tons of poultry feed and 186,935 thousand tons of dairy feed. With 1.8 million cows in that market, it is clear that the dairy-feed business is key to the success of the district. Out of those 1.8 million cows in the district, about 1.5 million are located in California.
2




Figure 1. Number & Location of Cargill's Animal Feed Plants Worldwide
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The California Dairy Feed Market
Considering that the Pacific Coast District of Cargill's Animal Nutrition Division is a predominantly dairy district and that the largest dairy market is in California, it will be the focus of this analysis. I define the industry as the California dairy-feed industry. This industry is a highly fragmented industry with a high level of competition among the feed companies. Most of the competitors in the market are involved in the sales of commodities and are therefore subject to great price wars. The companies fight for a customer base by attempting to deliver the same product as the competition b ut at lower prices. It is basically a biding system between the feed companies and the dairy producers. The way the companies are able to accept very low bids is by lowering their freight costs if they are closer to their customer base than the competition or if they are able to move more volume. The commodity business yields very low margins so volume again is crucial.
There are, however, some companies in the market that do provide more than just commodities. They provide processed grains, mixed feeds, calf feed, pelleted feeds, texture feeds, nutritional supplements and even nutritional services. These companies have large mills and technically-trained sales forces to service their customers. In this type of business, there is more differentiation and basis for comparison (competition) besides price. Each company has different qualities of processing, pelleting, product consistency, nutritional value, services, and technology.
In this market, companies sell directly to the end consumer, the dairy producer. Their sales forces go directly to the producers to sell product contract feed, consult on nutrition and management, and check inventory. Unlike other markets in the nation, the
4




California dairy feed market requires feed sales representatives to check inventory for the customers and call in the orders. This is a very time consuming and tedious task. In other markets this is the responsibility of the dairy producer. The tasks and responsibilities of feed companies and their representatives are changing however. In general, with the changing needs of the dairy businesses, feed sales representatives are having to become consultants in order to insure that the benefit of their feed programs are maximized through better management. This allows companies to sell total packages of product and services and differentiate themselves from the competition. Not many companies have moved that far yet, but it is the direction the influential companies in the industry are headed.
The dairy industry in California is very large and very progressive. It produced 18.7% of the milk in the Unites States in 1999. The state has about 1.5 million cows so there is great potential for companies to expand their business. However, although the number of cows has been increasing, the number farms has been decreasing. Today, there are less than 3,000 dairy farms in California. This is still a large number but in the future there will be fewer customers for which these companies will compete. The ones that will remain will be the most progressive and business-savy producers who will require much more from their feed companies than just timely delivery of commodities.
There are several players in the market today and the combination varies
depending on the area of the state. Some of the large companies are present throughout the state and other smaller ones are only present either in the southern or northern part of the state. The main competitors are Associated Feed, A.L. Gilbert Company, PennyNewman, Coast Grains, Foster Farms, J.D. Heiskell & Company, Hatch Milling and
5




Cargill Animal Nutrition. It has been difficult to determine the actual market shares for each company due to the lack of public information on the industry. It is also difficult because the companies compete in three types of business: straight commodities, mixed feeds, and custom feed and services. However, in general terms it can be estimated that A.L Gilbert Co. has the majority of the market share at 30%. This company has been doing business in the state of California since 1892 and enjoys great customer loyalty due to the length of relationships. The rest of the large companies like Cargill Animal Nutrition, Associated Feeds and Penny-Newman have about 10 to 11 % of the market. About 20% of the market is comprised of all the small companies that mostly deal with commodities.
Companies like Cargill are getting away from the straight commodities business and moving entirely to custom feeds made uniquely for each farm. Companies like Cargill are therefore also competing against private nutrition consultants who make custom rations for clients and assist them in booking the commodities needed for such rations. These companies are moving into added-value products to separate themselves from the competition. Table 2 shows the different product categories, their characteristics, and that of the customers that purchase them. Table 2. Product GroupingYPositioning
Product Type Description
Commodity Margins are slim. Customers are very price sensitive. Customer have high knowledge
about ingredients, manufacturing, and can easily compare competitors. Very little opportunity to be
a price leader.
Added Value Similar to commodities but with advantage perhaps in processing or delivery that may be hard to
Commodity duplicate. (ex Crimped Oats of high quality)
Commercial Customers are price sensitive. Customers perceive they have high knowledge of ingredients,
manufacturing, and look for animal production benefits. Easily comparable to competition. Pricing
is often done relative to competition (ex non-custom dairy feeds)
Added Value Products have higher differentiation from the competition. More difficult to compare. Customers
Commercial are looking for more benefits and understand the value they get in increased animal productivity.
Price according to perceived value. (ex. custom dairy feed, calf feed with unique benefits)
Source: Cargil Animal Nutrition; Effective Price Management Packet
6




Success requirements for companies competing in the California Dairy Feed Industry:
Product: No matter what segment of the business is being serviced, the products
must be of high quality and nutritional value. Quality is more apparent in
processed grains (rolled, crimped, steamed etc.), pelleted feed, and pre-mixes.
With such products consistency is absolutely necessary. If dealing with more value added products, it is important to have a unique benefit, something that
stands out in the customers mind, and be the first to bring it to the market.
Price: Price is a big factor in the commodities business where there is little
difference from company to company. The price must then be with in 1% from
that of the competition. However, in the value added products, value is more important, as long as the benefits outweigh the price. Pricing also depends on
how well differentiated one is from the competition.
Place: In this business it is absolutely necessary to deliver the product directly to
the farm and into the correct bins, bunkers or silos. Further more, in the
California market, the feed companies are expected to check inventory and advice the producers when to order more. Timely delivery is also essential. Never leave
a dairy producer without feed
Promotions: Volume discounts and early payment discounts are very important.
One must keep up with what the competition is doing. Free samples of new
products with the delivery of feed load and special deals on related products are
common.
7




Cargill Animal Nutrition Division-Dairy Focus Group
As mentioned previously, Cargill's strategic intent is to become the "Biggest and the Best Animal Nutrition Company in the World". This has been evident in the change in philosophy and approach they have taken in the market. In 1995 Cargill changed its animal feed division's name from Nutrena Feeds to Cargill Animal Nutrition for all its business except the Farm Store business. The purpose of the change is to communicate their new philosophy and be identified as an aiiimal nutrition company and no longer as simply a feed company. In the same effort, their sales representatives are now referred to as Dairy Management Consultants and have extensive training in nutrition and dairy management consulting as well as in sales. There has been a paradigm shift in Cargill's focus, from volume and economies of scale (when selling commodities was the way of business ) to revenue, as the customer focus has changed from price to value. The company seeks to sell high-margin products to high-level decision makers and create a strategic partnership with the customer.
The Cargill has created a customer-solution system called Focus Feed Program. Under this system, they developed a computer-based nutrition management system called Cargill Dairy System. With this system, the consultants work in the field with laptop computers to assess the forages that the producer has on the farm and what nutrients are missing. The proprietary, ration-formulation software is then used to formulate the appropriate ration and determine the retail price. Feed that is custom-formulated in the morning (according to the needs and limitations of the specific customer) is sent to the mill by electronic data transfer. Formulation coordinators revise them and check if there can be any cost reductions or improvements, and the feed can be delivered that afternoon.
8




The program can also adapt a formulation to market conditions such as a demand for high butter fat in the milk. The Focus Feed program is used by the division for about 70% of its dairy-feed business nationwide.
Thanks to this technology, the dairy management consultant (DMC) is able to have time to advise on more than nutrition. It is believed that the DMCs spend about 25% of their time on nutrition and 75% on management issues. It is important for DMCs to help the producers manage such things as cow care and comfort, record analysis, inventory control, environmental appraisals, waste management, and labor and facility management. If all these factors are well managed, the benefits of the nutritional program can be maximized.
This program was born in the Liverpool District in upstate New York as an effort to regain some business lost to private consultants that began to develop custom rations. Since its introduction in that district, Focus Feeds has gone from 26% of the dairy business to 72% and continues to grow. Cargill AND has become the leader in that market. Other large dairy districts like the Pacific Coast District are implementing the program and hoping to obtain similar results.
The Pacific Coast District-Strate2ic Business Unit Analysis
As discussed previously, the Pacific Coast District is predominantly a dairy
district and ranks third among all districts in dairy-feed tons sold. Its largest dairy market is in California, where it has only been present since the early 1980s. In that time, it has been able to capture some market share away from very traditional and established companies such as A.L. Gilbert Company. However, a large amount of potential
9




business and revenue remains un-captured. Last year the Cargill produced 322,505 tons of feed over all, out of which 186,935 tons were dairy feed (58%). The district earned $60 million in sales and $2.7 million in after-tax profits, down from the $3.25 million earned during the 1998-1999 fiscal year.
The Pacific Coast District has recently undergone some changes in management and are aggressively hiring and training top consultants to staff its sales force. Their new strategic intent is to become the most visibly aggressive nutrition technology provider on the west coast while being the best at providing value to their customers. Cargill AND wants to repeat the success obtained by in the northeast districts, by expanding their Focus Feed business (custom feed & management services) and focusing on higher margin products. The district's goal is to increase it's 11I percent market share to 20 percent in the next two years and increase its gross profit by at least $ 100,00 each year. The deployment of Cargill's new technology and better use of their available technology in the growth of their Focus Feed programs could allow them to reach such goals.
In Table 3. we can see that dairy feeds had a 2% increase in sales from the year prior but it was mostly due to the 13% increase in calf-feed tonnage. This increase in calf- feed sales is partially do to its Herd Builderm product performance. This product is one of their new-generation products (a category creator) and focuses on a unique benefit, bringing heifers to first calving in 22 months (rather that 24mo.). The same result could be obtained by continuing to apply the new generation technology of Focus Feed in the cow-feed business.
10




Table 3. Pacific Coast District Feed Sales for the Yr. 2000 Feed Type Tons Sold Difference in Tons Sold % From Change
Year Prior
Poultry 37,000 -1640 --------Calf 34,123 +4,011 +13%
Cow 146,272 -746 -1%
Total Dairy 186,935 +4301 +2%
Equine 10,004 -270 -3%
Total Sold 1 322,000 1-3522 1 _1%
Source: AND Pacific Coast District Marketing Meeting 7/12/00
Cargill currently markets all of its entire range of dairy feeds and products in the California market. A list of them and their characteristics are provided on Table 4. The variety of products allows them to satisfy a variety of customers and their different needs. There are producers who only purchase some nutritional supplements or mineral and vitamin packs, but purchase all the rest of the feed ingredients separately either from Cargill or from another provider to then mix the ration on their own. There are others that raise or buy (separately) some portion of their feed ingredients but buy 40-60% of their non-forage part of the ration from Cargill, that is already mixed and delivered a such (Blended feed). Other customers purchase complete feed, which has all that the animals require in the mixture and the producer must only add the forage part of the ration and mix it all together.




Table 4. Product Offerin~gDair Market Type of feed % of Description
non
forage
ration
Complete Feed 100 All supplementary nutrients need to meet animals requirements
included (except forage). Most complete Blended 40-60 Source of some energy and protein and all vitamins and minerals.
Used by producers who raise or buy some of the grain or protein for animal separately.
Supplement/Concentrate 15-30 A source of supplemental protein, minerals, vitamins. Base mixes 10 Some of the required major vitamins and minerals
Minerals 1.25- Micro and macro
3.75
Pre-mixes .5-3.75 Mostly trace minerals
Herd BuilderTm Category creator. A unique value-added product. Starter, grower
and developer program that will have heifers calving at 22 mo of age.
BUGS Bacteria and enzymes designed to improve feed intake and fiber
digestion.
Storage StabilizersTM ------- Bunker-MateTM, Haylage-Mate, Silage-Mate: increase
- nutritional value of high moisture forages and grains.
Source: www.cargill.com
These different products satisfy very different customer needs and allow Cargill
to have a wide range of customers. However, not all of them provide the same revenue
opportunity to Cargill. Mineral packs, supplements and specialty products have much
large margins than other products. Products that are value added, whether by processing
(ex. pelleting), mixing, or because of a special benefit (ex.Herd BuilderM), are also of
higher margin.
Cargill wants, of course, to maximize the opportunities where they can provide a
complete feed, custom made for the specific customer. In this type of business Cargill
can bring in its Focus Feed program utilize its technology and consulting resources, and
become more than a feed provider to the customer. The relationship becomes more
cooperative and Cargill AND becomes a trusted advisor to the dairy producer. This way
they can help the producer in all aspects of dairy management that will ensure that the
12




feed program works properly. The consulting fee is paid through the feed purchased from Cargill. The pricing is done as a package of added value and is difficult to compare with the competition.
Although different producers are in different situations and have different needs, all producers look for high-quality products with high nutritional value and expect timely delivery of their feed to the farm, as well as volume and early payment discounts. These requirements are met by most of the main competitors in the California market, so where does Cargill add value to the customer and differentiate itself from the competition?
Cargill's Value Proposition
* Decreasing shrink (feed loss) on farm by providing an already mixed feed,
therefore reducing the number of ingredients need to be stored and mixed on
farm.
" Custom ration and services
* Enhanced feed and better ration formulation with the expertise and technology of
Cargill Animal Nutrition.
* Technical resources from around the country at the disposition of the customer
" State-of-the-art equipment and know-how for milling feed
" Research on and access to alternative ingredients
S.W.O.T. Analysis of Carmill Animal Nutrition Division's Pacific Coast District
In order for a the Pacific Coast District to reformulate their business strategies and access their competitive position, it is essential to evaluate their internal strengths and weaknesses as well as the external opportunities and threats that are present in the
13




market. Such analysis I know as SWOT. Table 5 provide a summary of such items
which a further elaborated in this section.
Table 5.
Pacific Coast District SWOT (Strengts, Weaknesses, Opportunities, Threats) Analysis Summery
Strengths Weaknesses
- Cargill Inc's. strong financial backing -High turnover in sales force and name -Low market share
*Industry-renown training in animal -Pricing strategy nutrition consulting -Less tradition in the area compared to competition
-Proprietary computerized technology -High price perception in the market 'Ration-formulation system (top in the
industry)
-Access to markets for alternative
ingredients
-Well managed mills. Safety & Quality
Opportunities Threats
-Higher margin business 'Two competitors are opening two new mills
'Synergy with Renissen 'Energy shortage in California
(Cargill/Monsanto joint venture) 'Less business from dairies w/ private consultants 'New distribution-1.8 million cows in Main competitors are staffing themselves with consultant type the marketplace sales people
'Growth of dairy consulting -Increasingly large dairies may find it more cost effective to
'Changing producer perception- Focus purchase and mange conumodities separately Feed, Herd Builder 'Consultant and feed company contradiction perception may be
hard to overcome
Strengths
The primary strengths of Cargill are all related to their expertise, vast resources,
and cutting edge technology in animal nutrition and feed formulation and manufacturing.
The Cargill company also has a great amount of weight and respect in its name, not to
mention its financial strength and accessibility to agriculture markets.
Cargill Animal Nutrition consultants are very sought after in the industry due to
the quality of training they receive. These consultants bring great value to their
customers and become their trusted advisors. They are well trained in ration formulation,
nutrition and general management, so they are able to help producers increase their
production and profitability through fine-tuning the entire operation. This is, of course,
14




not always accomplished by a single person, but Cargill has the resources to bring a group of individuals with different fields of expertise to work on one particular account. Among the Cargill consultant team there will be different expertise that in a team environment can bring solutions to their customers. Cargill's customers will not only have the consultants in their territory and the specialist at the local office as a resource, but also the scientist at the Cargill Animal Nutrition Center in Minneapolis. In addition, there are other experts in the industry that Cargill can bring in to consult or give conferences. This is a value that other feed companies in the market will have a hard time providing.
The Dairy Management Consultants not only count with a great amount of human resources but technological as well. The Cargill Dairy Systems ration formulation program (now available in Windows version) is one of the best and most sophisticated in the industry. It leads the industry in amino acid profiling for dairy rations. In addition the program can adapt a formulation to market conditions such as a demand for high butter fat in the milk. As mentioned before, feed that is custom-formulated in the morning (according to the needs and limitations of the specific customer) can be delivered that afternoon.
The proprietary computerized system used in Focus Feeds also has two other
programs that give Cargill a great competitive advantage. They both use what is called optimum-value formulation, which is how Cargill finds a way to have a low cost solution to a puzzle that includes nutrition requirements, feed ingredients maximums and minimums, and prices. For example, if the market price of an ingredient goes up, the software can find a substitute that is more cost effective and meets the nutritional
15




requirements. Cargill has the market access capability and research facilities to find a new ingredient alternative, test it for its nutritional value and have the result in the system in 48 hours. This allows the company to use byproducts from different industries and lower-cost commodities and test their viability for dairy rations. If the nutritional value and viability is there they can save thousands of dollars a year
The other software is known as the Optimum Value Supplier Database. This database is constantly being updated within information on suppliers, such as quality, consistency, service, and price. The program than assigns a relative value to the product supplied by each supplier. Lest assume, for example, that Cargill was considering purchasing a product from two different suppliers and the preferred supplier is charging $5 dollars more than the other. If the database shows that the preferred supplier's relative value is $9, Cargill would gladly go with that supplier since it is worth $4 dollar more to them than what the supplier is charging. This is a very powerful tool. If not unique, it is more advanced than any other in the industry.
If we take in mind the considerable value that the highly-trained consultants and the almost unlimited resources that Cargill provides to its customers and the cost saving technology utilized in ration formulation, in addition to the excellent management at the mills in the district, it is easy to see that there is great potential to greatly increase its market share and profits. Note: (The Stockton Mill, one of the three in the district has functioned for 836,000 hours without lost time thanks to the priority they give to safety) Weaknesses
The weaknesses identified in Table 5 could be the possible reasons why, even
tough the district has great strengths, it has had a difficult time obtaining new distribution
16




(new customers). The Pacific Coast District ranks 12th among the 15 districts in this category.
The main observation made while interning at the district was the shortage of
dairy management consultants at the time and the high turnover rate they were having in their sales force. One reason for the turn over is that the excellent training they receive makes them very desirable in the market and different companies recruit them and offer them bigger salaries and responsibilities. Others go out and open their own business as private consultants. A third reason for the turnover is that, as it occurs in many companies, the sales people are relocated to other areas or move up in the company.
Unfortunately, this is very difficult for customers to take since they have to train and get used to each different representative that comes along. Not all of them understand that the reason for the turnover is not always because of problems with the company but rather, due to advancement of the representatives' careers. For this reason, it is important for the district to find ways to keep its people longer and well compensated to reduce this problem.
Some of the other weaknesses are due to the reputation the company has made for itself in the past. To begin with, the company does not have the long tradition in the area that some of its competitors have. Furthermore, there seems to be a perception of unreasonably high pricing that lingers in the market from the past. Since Cargill, as of yet, has a limited market share, their presence is not big enough to change this perception quickly over the entire marketplace. This is a barrier that the consultants must overcome and clarify, especially now that Cargill is dealing more with value-added products and services. I t will be crucial to make sure the customer recognizes the value.
17




It is very surprising that so many producers see Cargill as an overpriced supplier, when its current pricing strategy s not actually extracting enough margin and may be passing up important levels of revenue. In the category where Cargill has truly value-added products in the mind of the customer, or are part of a unique program such as Herd Builder and Focus Feeds, they are not extracting the margins the could. In this category, according Cargill, a price increase of 5-20% and a margin increase of 20-80% are often possible without affecting volume. In many cases, the district, and the division in general, are using internal methods of pricing, like cost plus, that don't test what the market will bear. Instead, they should use more of an external pricing approach where you use information on the competitors' pricing, the value your product represents to your customer, and how unique your offering is (its positioning), to determine a price. External pricing will extract the margins that the products deserve and closer to what the customer is willing to pay for the perceived value and uniqueness. (Value--Benefits-Price)
Opportunities
As mentioned before, the California Dairy market with its 3,000 dairy farms and
1.5 million cows has immense potential to obtain new business. One factor that might help achieve the growth in business is the opportunity of the Dairy Management Consultants becoming very influential people in the industry by helping their current customers excel in the business. As the dairies get larger and more business oriented, the need for multidisciplinary consultants will continue to grow, especially for those who have such a variety of tools and resources at their service like Cargill does.
18




Another great opportunity for continuing to increase the current business and obtaining new distribution is by changing the current perceptions of the market. Herd Builder for example, changed the perception that it takes 24-28 months to bring a heifer to first calving. The same can be done with Focus Feeds. The program can change the perception that producers should mix their own feed and purchase the ingredients separately to obtain better prices on them. The program should also change the perception that feed companies should not be your nutrition consultants because they will push their own feed at higher prices to make money (conflict of interests). The Focus Feeds program involves a package of feed and technical services that help producers improve their profitability and therefore gives an opportunity to charge higher margins and increase revenues.
Cargill is clearly at the forefront of animal nutrition world wide and its long-term thinking continues to drive advances that will make it the "Biggest and best animal nutrition company in the world". Such is the case of the new company created as a joint venture between Monsanto and Cargill Animal Nutrition. This company, named Renissen offers a great long-term opportunity of synergy in the future as it will research and develop nutritionally-enhanced crops that could be used in animal feed. The potential opportunities there are endless.
Threats
There are various threats that Cargill may encounter in the market and much of it has to do with its competitors. Some of them have caught on to the idea of having nutrition consultants rather than straight feed sales people as part of their sales force. There is one in particular that has began staffing itself with talent in that area and has actually been
19




recruiting from the ranks. There is the threat that they will continue to attract more Cargill employees or at least compete strongly in the job market. Cargill will have to take decisive steps to make sure they become the preferred employer in the area and keep the talent they recruit. The secondary threats that arise from having have lost key employees tothe competition is that they may drag customers with them due to personal loyalties and may also take the knowledge obtained in the Cargill training.
The same company that has been recruiting people from Cargill and another company called Coast Grain are building new mills that'"rill have great receiving capacity and will mainly produce rolled grains. Cargill is not trying to compete in the commodity business but the perceived threat seems to have encouraged Cargill to make an agreement with a competitor, Foster Farms Commodities, to produce and ship much of the rolled grains Cargill will use for its accounts.
Another possible threat to be aware of is that, since Cargill is aggressively seeking new business in the market as nutrition consultants and feed providers, they pose a threat to private nutrition consultants. In other words, private nutrition consultants may see Cargill as a competitor and might be hesitant to have Cargill make rations for their customers because they would have access to both the formulations and the customers.
One very important threat to mention is the California energy crisis. Cargill has a deal with Pacific Gas and Electric to obtain lower energy charges during the year but for this benefit Cargill is subject to electrical shutdowns whenever PG&E requires it, during the summer months. During a hot summer the plants may be shut down for part of the day two to three times on average. Cargill runs most of its plants 24 hours a day so it finds a way to make up for the lost time and has devised ways to deal with labor.
20




However, the big power outages experienced this year, the continuing energy shortage, and the rising gas prices are more serious problems and threaten the regular operation and profitability of all businesses in California.
The last threat is one that would prevent Cargill from expanding its Focus Feeds business as desired. This threat is due to the fact that the increasingly large dairies in California move such large volumes of commodities that they might find it more cost effective to purchase commodities separately, have the storage space to keep them, and mix the ration themselves. In this case, Cargill could only provide perhaps the vitamin and mineral packs and other supplements. In this case, it might be best to accept that it is more cost effective for them and perhaps offer the consulting service along with the mineral or supplement packs being sold. After all, they are high margin products. Observations and Recommendations
By performing a similar analysis to the one just outlined in the previous section the Pacific Coast District identified five strategies that would help the company achieve their goals for the year 2000-2001. Each of these strategies has various action items assigned to key people in the division.
Those strategies are as follows:
1. Make it easier for customers to do business with Cargill
2. Focus on increasing product consistency
3. Become the preferred employer in their markets
4. Optimize the use of the technology and best practices
5. Fully develop Value Based Solutions
Taking the key areas they have identified and the above analysis of the industry and the strategic business unit, a few observations and recommendations can be made, which are important for the success of the Pacific Coast District.
21




First, to make it easier for customers to do business with Cargill they must first
improve their phone customer support service at the main office. Customers like to speak with people when they have questions or concerns. The current system very often forwards calls to computer-prompted voice mails that may frustrate customers. The district office should train all personnel in order-taking and resource-location to answer any incoming customer calls even if the person in charge is unavailable. They should also explore the opportunity of using e-mail for questions and answers and for sending material such as price lists and product information. A web page enabled for ordering products could also be a possibility.
To become the preferred employer in their markets and offset the threat of competitors hiring talent away from them, Cargill should continue to develop their relationships with the area agricultural universities. They should continue with their plans to hire interns, participate in job fairs, and fund events at U.C. Davis, Cal Poly, and Washington State University. In addition, they must reduce the turnover in sales representatives they have had in the past years. In if they want to be the leader in the industry they must pay like the leader in the industry, not an industry average like they do at present. Creating more of a team environment and getting new managers involved in activities with employees, and taking action on employee satisfaction surveys may also help a great deal.
In order to expand their presence in the California market and increase their revenue Cargill must continue to position itself as the premier nutritional-technology provider. They must attempt to change the producers' perception of business practices. To do so, they must show the value of a customized ration with the highest technology
22




and know how in the industry. They must efficiently deploy and implement all the tools and technologies available to them. Targeting some very influential dairy producers in each area with the Focus Feed program, perhaps, can begin a wave effect of changing perceptions. It will also be necessary to work closely with other influential people in the industry such as veterinarians, private nutritionists, university extension agents, and bankers so as to service clients and increase benefits for all parties involved.
Cargill will not, and is not, interested in competing in all the arenas of the feed
business. Their interest is the higher-margin products combined with consulting services for the producers. They have higher quality and consistency in their products, a topnotch animal-nutrition research facility, and a high level of training to differentiate themselves from the competition. With large-dairy producers who have the capability of efficiently purchasing large volumes of commodities on their own, Cargill should simply obtain their mineral and vitamin-pack business (higher margin) and provide consulting services. In other cases, they may also want to continue alliances with commodity providers to jointly service such accounts. The advantage that Cargill has is that with its available consulting resources and access to new ingredients at better prices, it can help the producer in all areas of their operation, in order to improve their profitability and make sure that the feed program reaches its potential. Being part of the customers business will help Cargill formulate the programs that best fit the customers' operational need. Getting inside that business is the challenge they face.
23




Internship Project
In the effort to become more entrenched in the California dairy community and become a preferred employer in their market, Cargill hires a number of summer interns from the main agricultural universities on the west coast. As a graduate from the University of California -Davis, I was hired as a Dairy Management Consultant (DMC) Intern for the summer of 2000.
Cargill gives the interns an inside look at the company's culture, principals, and main areas of business. As a DMC Intern, I was also able to participate in the yearly marketing meeting, the first Intern School in the Pacific Coast District, shadow the Dairy Management Consultants and participate in a summer-long project in the market.
The intern projects are then presented to interns and Cargill managers from across the country at the Cargill headquarters in Minneapolis. The projects assigned, not only provide a great learning experience to the interns but show case what Cargill Animal Nutrition is attempting to do in the market for the benefit of the dairy producers. My particular project relates to the profitability of feeding programs and the different areas dairymen must monitor to keep up with such information. Improving profitability and helping dairymen understand the factors that drive it, is a key effort made by DMCs with their customers, and is what sets them apart from competitor's sales forces.
The project assignment was to have 20 to 30 dairies participate in a lactating feed cost-per-hundred-weigh-of-milk analysis and an evaluation of their cow care and comfort management. In the project, the feed costs for dry cows (cows not in lactation) were not included. The project participants were located in the Stanislaus, San Juaquin and Merced counties in the north central valley of California (see Figure 3).
24




Some of the participants are current Cargill customers, but the majority, were
obtained through prospecting and contact with private nutrition consultants in the area. In this project, I worked very closely with dairy nutrition consultants, managers, herdsmen, and feeders to obtain accurate information on daily milk sold, feed ingredients and costs, number of cows fed, quantities fed, and general management. For a summary of the project report as presented to the dairy producers, please refer to the Appendix A. (Note: for the purpose of comparison, forage costs were put on dry matter basis)
Figure 3.
.... .... .
N *
r .
~2,
... ... . ..
s N/ \2
'. !i. :':4 .. .. ,: "
...:" ::, :i~: .... 4 .. .
Ii. .. : .. .x..
..:... :: .... .. .......... . ...
.. .. ... : : : .
.. .. .. .
". < :25




Why is feed cost per hundredweight an important measure?
Many dairy extension agents from various leading agricultural universities
express their concerns about the small number of farm managers that understand what drives profits. Very few dairy producers are monitoring the right information on a routine basis in order to have a good handle on their profitability.
A very important variable to monitor and for which to set goals, in any business, is the gross margin. Very few dairy producers, maybe 15%, have a handle on their gross margin'. In the dairy business the best representation of the gross margin is simply the milk price minus the feed cost, since feed cost is such a large percentage of the total cost of production (40-50%). Therefore, it's very important to track the feed cost per cwt of milk. Knowing that variable can allow producers to calculate their gross margin. Feed cost (on a per hundred weight of milk basis) has to do not only with the cost of feed on a per ton or pound basis but with feed conversion.
Feed conversion, or the pounds of milk produced from a given amount of feed, depends on the quality of the feed, the ration formulation, and the way the cows and the facilities are managed. The dairy producer has little control over the milk price but does have control over feed purchasing, ration formulation, cow care and comfort, and inventory management. By better managing those areas, dairy producers can improve their gross margin. Feed companies and consultants should help their clients focus on feed conversion and the improvement of gross margin. The best way to improve that margin is by increasing milk output per cow, which in turn drops feed cost per hundredweight of milO. "Feed cost per 100 lb of milk is a common marker of economic
26




efficiency and decreases considerably as production increases from 25 to 50 lbs of milk/cow/day"2. (M.J. Vanderllaar, Ph.D., 1997) I t is important therefore to help dairy producers understand that simply lowering the feed cost alone, especially when it compromises production, is not recommended. Studies have shown that feed efficiency increases as a cow produces more milk and that in general, income over feed costs (gross margin) increase as milk production increases, even when feed becomes more expensive 2. Generally, in order to maintain higher levels of milk production, higher quantity and quality of feed has to be provided and that, can increase cost of production. At the same time, to insure better feed intake and conversion, there must be an investment in better cow care, comfort, and management (ex. cooling systems, water availability per cow, feed availability, etc.). Nevertheless, in most situations when income over feed cost is increased, profitability also increases. (see tables
1 and 2 in Appendix B.)
It is also important to understand, that cost of feed per hundredweight is not the only financial measure that dairies should track. In some cases, such as when comparing profitability between different dairies, the total volume of milk production must also be considered. In the project shown in the appendix, the only costs monitored were those of the lactating herd, but usually dairies should include the feed costs of the dry cows as well. Nevertheless, the feed cost per hundredweight of milk sold is a better measure than simply looking at feed costs per cow.
Following, is a simple illustrative example, as it appears in "Making Your Feed Dollars Count: Sometimes We Just Need to Get Back to the Basics" by Jorge M Estrada and Gary F. Hartnell 3
27




Example
Farm A Farm B
Cows in the herd 100 1100
Feed costs, $/cow/day :...66 :3.00
sMilk, l 50 :70
Milk price, $/cwt 13.00 :13.00
Feed costs, $/cwt milk .5.32 4.29
Some overfe edcosts/cow, $ 84 6.. ...........
Many dairymen use feed costs per cow per day as a measure of profitability. Let us take the case above where Farm A has a lower feed cost per cow than Farm B. Is Farm A more profitable? Farm A has a lower milk production average than Farm B. Farm A has a feed cost per cwt of $5.32 ($2.66/.5 cwt) as compared to Farm B with a feed cost per cwt of $4.29 ($3.00/.7 cwt). Therefore, even though the feed cost per day was lower for Farm A the feed cost per cwt was lower for Farm B. The milk income minus feed costs per cow for Farm A ($13.00/cwt x .5 cwt $2.66 = $3.84) is less than for Farm B ($13.00/cwt x .7 cwt $3.00 = $6.10). Farm B had an income over feed cost/cow of $2.26 more per day than Farm B. In this example, where cow numbers and milk price were the same between farms, both the feed costs per day and the production level of the cows were needed to determine true profitability.
Dairy producers, when deciding to change anything in their feed program, should set goals for themselves and monitor the results. It is necessary for the producer to determine the amount of extra milk they must produce in order to pay for the difference in cost of the new ingredients (break even), and follow up after a set period of time to assess the success of the new feeding program. There are some very expensive rations being fed in the industry that contain high-priced ingredients that do not increase milk production enough to justify their use. Therefore there are some dairies that do an excellent job at managing the facilities and cows and produce high volumes of milk but are not monitoring the results of some of the ingredients in their "high production" dairy rations. Those dairies could actually be less profitable than a dairy with less milk production but a more cost-effective ration.
28




As mentioned before, a good ration alone will not produce results. It must be a
complete program, where cows are kept comfortable and with plenty of water and feed at all times, dry mater intakes per cow are monitored, feed losses are minimized, and good health is maintained. It is in this process, that dairy management consultants can play a big role. The summer project presented in Appendix A attempts to bring awareness about all these issues to the participants and showcases the efforts Cargill Animal Nutrition is making to assist producers to understand and improve their profitability.
29




References
'Bailey, Ken. "Dairy Producers Need To Look At New Approach". University of Missouri Columbia, Extension Dairy Economics. June 1998. (www.dairybiz.com/archives)
2VandeHaar, M.J. "Focus on Profits Rather Than Feed Costs". Dairy Feed Facts, Dec 1997. (www.moormans.com/dairy) 3Estrada, Jorge M. and Hartnell, Gary F. "Making Your Fee Dollars Count: Sometimes We Just Need to Get Back to the Basics". St. Cloud Dairy Expo95 Proceedings. Dec, 1995. (www.monsanto.com/dairy) 4Post, Rachael. "Happier Holsteins". Cargill News International. www.cargilll.com 5California Cost of Milk Production: Annual Summary 1999. California Department of Food and agriculture, Dairy Marketing Branch. 6http://www.cargill.com
7Pacific Coast District Intern School 2000 Proceedings. Cargill Animal Nutrition. June 26-27, 2000
8Personal Contact, Matt Tilschner. Dairy Focus Consultant. Cargill Animal Nutrition
30




APPENDIXA
31




Summer Internship 2000
Lactating Feed Cost Per CWT of Milk Project
by
Rodrigo Carranza Dairy Management Consultant Intern University of Florida Pacific Coast District
CAR I Al r
* CARGILL Animal Nutrition




Introduction
"In the last two decades, well-run dairies learned to manage dollars. In the next, they will manage pennies (Laura Sands, Dairy Toa, Nov.-Dec 1999). In today's very competitive market, dairy producers must pay close attention to their financial management as well as their cow management. They must be able to do some planning and budgeting and following up on the result of their investments. In order to monitor profitability, the farm manager must understand what drives profits and track that information on a routine basis.
One of the most important variables to track is the feed cost per cwt of milk. Knowing that variable can allow you to calculate your gross margin, which in a dairy, translates to income over feed cost, since feed cost is such a large percentage of the total cost of production (40-50%). Feed costs (on a per hundred weight of milk basis) have to do not only with the cost of feed on a per ton or pound basis but with feed conversion. The pounds of milk produced from a given amount of feed depends on the quality of the feed, the ration formulation, and the way the cows and the facilities are managed. The dairy producer has little control over the milk price but does have control over feed purchasing, ration formulation, cow care and comfort, and inventory management. By better managing those areas, dairy producer can improve their gross margin. Feed companies and consultants should help their clients focus on feed conversion and to the improvement of gross margin. The best way to improve that margin is by increasing milk output per cow which in turn drops feed cost per hudredweight of milk.
The purpose of this project was to find the lactating feed cost per hudredweight of milk at participating dairies, to calculate their gross margin per cow ( milk revenue minus feed cost) and evaluate their cow care and comfort in relation to feed conversion. Thirty dairies were initially approached but only 20 provided the necessary information. I worked closely with dairy nutritionists, feeders, herdsmen and owners to obtain data on milk production, feed rations, cow numbers, feeding records, and feed ingredient prices. Due to the great variation in milk prices related to quota and quality bonuses, a milk price of $11.00 per cwt. was used for all dairies. This way the dairies could be compared on the variables in question alone ("on a level playing field").
The dairies included in the project are very diverse in size, management style, milk production, and feeding program.
2




Project Summary
Objectives:
- Find the lactating feed costs per hudredweight of milk at 20 participating dairies in
Sacramento, San Joaquin, Stanislaus, and Merced counties.
- Calculate their gross margin per cow (milk revenue minus feed cost)
- Evaluate their cow care/cow comfort -> relate it to feed conversion
- Compare the information obtained from different dairies
Value:
- Creates awareness of the importance of having a handle on Gross Margin
- Provides a summary of results including observations that may aid the producer
- Allows participants to compare their performance in relation to other producers in the
North Valley.
Scope:
Lact. Herd Size Range (90 -1300) Average lact. feed cost/cwt milk 4.92
Milk Production Range (55 90 lbs.) Average Gross Margin (GM) 4.62
Feed Cost/Cow/Day Range ($3.00 $4.59)
Results:
The information provided for this project is for the month of June and/or July depending on the availability of the data. The summary of the results can be seen in the summary tables enclosed. Each table is sorted for a different variable to rank the dairies under different criteria. From these tables, various graphs are obtained, that show the relationships between the different factors.
As can see be observed in the tables, the top 5 dairies in milk production are, for the most part, the top 5 dairies in cow care/comfort score, feed cost/cwt of milk, and gross margin. We see a very close relationship between milk production and gross margin (income over feed costs). The better the milk production, the higher the Gross Margin for the dairies The correlation between cow care/comfort and gross margin is also high. Now, there are some dairies that might have a better overall cow care score but their milk production is below that of dairies with lower scores. This could be due to other factors such as quality of the feed, the ration itself, or simply that, even though their overall score is high, they might be lacking in cow cooling.
3




What is interesting to see is that one dairy might have a lower feed cost than another, but on a cwt. of milk basis have a higher cost. This is due to milk production and the factors that affect feed conversion. As can be seen in Table 2, dairy H has a lower feed cost/cow/day by $0.13 compared to dairy R, but dairy R has a higher production per cow per day of 5 lbs. When we calculate the cost of feed per hundredweight of milk, we see that both are at $4.85. The difference in production however, allows farm R to have a better gross margin and their feed cost comprises only 40% of their milk revenue as opposed to the 45% of dairy H.
Last but not least, please note Figure 3, where we can see the inverse relationship of gross margin and the percentage of milk revenue that goes into feed cost. The higher the gross margin the dairies had, the lower their percentage of feed cost. In the same graph, we can also see the strong relationship between cow care/comfort score and gross margin. With very few exceptions, dairies with higher scores had higher gross margins. Since cost of feed per hundred weight of milk has to do with the cost of feed per ton as well as with factors that affect feed conversionthe pounds of milk produced from a given quantity of feedstuffs-- this suggests that cow comfort is one of those factors. The improved cow care probably helps to improve feed conversion and allows producers to get a better return on their feed dollars.
It is important to look beyond the cost of feed per unit of weight and focus on the return on your feed dollars. The dairy producer has to focus on feed conversion to increase milk production and improve gross margin. It is, of course, also important to be smart when purchasing feedstuffs as far as price, quality and utility is concerned. A cheaper feed program might not always be the most profitable. One must do some follow up to determine the results and take a look at the finance. On the other hand, there are dairies that have excellent cow comfort/cow care and have a high production of milk per cow, but the cost of their feeding program eats away too much of the revenue. In other cases, there are dairies that might have low feed cost, maybe even good rations but the cows are not in an environment conducive to good intakes and good feed conversion. The key is identifying the factors that drive profits and monitoring routinely.
4




Table 1. Complete Summary Sheet
Dairy Avg milk/cow Avg Lbs DM Fed Cost/milkcow/day Milk Price feed cost/cwt milk # cows lact GM/Cow Cow care score Feed$/Milk A 76.5 50.9 4.01 $11.00 5.4 541 441 126 48
B 82.1 52.1 3.86 $11.00 4.6 444 5.18 150 43
C 85.4 52.32 4.59 $11.00 53 847 480 165 49
D_73.7 62.8 3.47 $11.00 4,71 1200 4.63 138 430
. . . ...0 x :, % :' ' ' . .f - . . . . . . . . . .
E 71.0 52.9 3.45 $11.00 4I86 547 4.36 130 440
F _74.2 56.6 3.66 $11.00 4.93 303 4 SO 128 45"
G 67.6 48.1 3.27 $11.00 484 263 417 1 440
H _85.0 53.2 4.13 $11.00 45 340 523 155 440
S84.6 53.1 3.91 $11.00 462 1289 5 x39 148 420
J 73.1 49.81 3.52 $11.00 4.82 352 452 143 440
K 71.5 47.1 3.13 $11.00 437 1299 4 74 138 40
L _60 44.10 3.00 $11.00 .,00 300 3 0 119 45
M 77.7 49.18 3.81 $11.00 4.9 517 ::i:4.7:.4 148 4504
N 86 56.59 3.78 $11.00 43 524 .68 186 409
O 8_- .83.6 52.7 4.00 $11.00 4.78 288 5.20 148 430
P 88.8 60.5 3.84 $11.00 4::~ 595 5.92 166 390
Q 54.5 51.7 3.67 $11.00 "7 90 23 111 61O
R 90 54.36 4.36 $11.00 4.8. 94 5.54 172 440
S 66.7 53.7 3.62 $11.00 200 2 1225 4904
T 75 53.33 3.43 $11.00 4.58 996 4 145 420
.................. I ................"....... '. ............................ I"2 .................... .7..... ....................... .................. '4 2 .............. i '1' ........... "7 .................... ; ....... 5
Toa vrg~ 76.34: 52.75: 3.73: 4.2: ......4.67.1421
.. . . .. . . .. .: ............ .. .................................. ................. ............. .. .......................... .................................... ......................... .................. ............................... .....................
................ .............. .................. ................................... ..................................... ........................................................................
............. .................. .....................................................
ue cow car co comfort rIt in wa d using the Nrgill Animal iutrition sco e card. The scores a re out of a total of 210 points. A score abowe 170 is considered exellet and a score below 100 is considered ery poor.
....................................................................................................... ..... ........ .................................................
Table 2. Summary- sorted by cost/cwt of milk
DaIry Ava milk/cow Costlmlkcowlda Cow care score Milk Price costlcwt milk # cows lact GMICow Feed$1Milk$
P 88.8 3.84 166 $11.00 43 595 5.92 48%
K 71.5 3.13 138 $11.00 4~. 7 1299 4.74 43%
N 86 3.78 166 $11.00 4...3 524 5.68 49%
T 75 3.43 145 $11.00 4 996 4.82 43%
I 84.6 3.91 148 $11.00 46 1289 5.39 44%
B 82.1 3.86 150 $11.00 4M, 444 5.18 45%
D 73.7 3.47 138 $11.00 471 1200 4.63 44%
0 83.6 4.00 148 $11.00 4::::: 288 5.20 44%
J 73.1 3.52 143 $11.00 .4. 2 .. 352 4.52 42%
G 67.6 3.27 124 $11.00 4::84 263 4.17 44%
R 90 4.36 172 $11.00 4. 85 94 5.54 40%a
H 85.0 4.13 155 $11.00 4 340 5.23 45%
E 71.0 3.45 130 $11.00 4:. .;........ ii86" 547 4.36 45%
M 77.7 3.81 146.6 $11.00 :: 4 908:::: 517 4.74 40%
F 74.2 3.66 128 $11.00 4. 303 4.50 43%
L 60 3.00 119 $11.00 0 300 3.60 39%
A 76.5 4.01 126 $11.00 6...24 541 4.41 61%
C 85.4 4.59 165 $11.00 M 847 4.80 44%
S 66.7 3.62 122.5 $11.00 543 200 3.72 49%
Q 54.5 3.67 111 $11.00 6 90 2.33 42%
Total Average: 76.34 3.73 142.1 4.92 551 4.67 45%
5




Table 3. Summary-sorted by Gross Margin/cow
Dairy I Avg milkicow Cost/milkcowlday Milk Price cost/cwt milk # cows lact GMICow Cow care score Feed$1Milk$ P 88.8 3.84 $11.00 4.33 595 5 92 166 48%
N 86 3.78 $11.00 4.39 524 5.::: i:i::i68:. 166 43%
R 90 4.36 $11.00 4.85 94 5.:: :::, -''.. 54 172 49%
I 84.6 3.91 $11.00 4.62 1289 5.39 148 43%
H 85.0 4.13 $11.00 4.85 340 5'::.: 23 155 44%
O 83.6 4.00 $11.00 4.78 288 5K20 148 45%
B 82.1 3.86 $11.00 4.69 444 5.18 150 44%
T 75 3.43 $11.00 4.58 996 4.82 145 44%
C 85.4 4.59 $11.00 5.38 847 4.8 165 42%
M 77.7 3.81 $11.00 4.90 517 474 146.6 44%
K _71.5 3.13 $11.00 4.37 1299 4 74 138 40%
D 73.7 3.47 $11.00 4.71 1200 463 138 45%
J 73.1 3.52 $11.00 4.82 352 4 143 45%
F 74.2 3.66 $11.00 4.93 303 450 128 40%
A 76.5 4.01 $11.00 5.24 541 4.41 126 43%
E 71.0 3.45 $11.00 4.86 547 4.36 130 39%
G 67.6 3.27 $11.00 4.84 263 4.17 124 61%
S 66.7 3.62 $11.00 5.43 200 3.72 122.5 44%
L 60 3.00 $11.00 5.00 300 !360 119 49%
Q 54.5 3.67 $11.00 6.73 90 233 111 42%
Total Avrg.: 76.34 3.73 4.92 551 4.67 142.1 45%
Table 4. Summary -sorted by milk production per cow
Dairy Avg milklcow Cost/milkcowlday Cow care score I Milk Price costicwt milk # cows lact GMICow I Feed$1Milk$ R 90 4.36 172 $11.00 4.85 94 5.54 48%
P :88B 3.84 166 $11.00 4.33 595 5.92 43%
N B.8.5...... S 3.78 166 $11.00 4.39 524 5.68 49%
C 854 4.59 165 $11.00 5.38 847 4.80 43%
H 850 4.13 155 $11.00 4.85 340 5.23 44%
I 846 3.91 148 $11.00 4.62 1289 5.39 45%
O 3. 4.00 148 $11.00 4.78 288 5.20 44%
B 82.1 3.86 150 $11.00 4.69 444 5.18 44%
M 777 3.81 146.6 $11.00 4.90 517 4.74 42%
A 76.5 4.01 126 $11.00 5.24 541 4.41 44%
T 75 3.43 145 $11.00 4.58 996 4.82 40%
F 742 3.66 128 $11.00 4.93 303 4.50 45%
D 737 3.47 138 $11.00 4.71 1200 4.63 45%
J 73A 3.52 143 $11.00 4.82 352 4.52 40%
K 71.5 3.13 138 $11.00 4.37 1299 4.74 43%
F : : 71, 3.45 130 $11.00 4.86 547 4.36 39%
G 67.6 3.27 124 $11.00 4.84 263 4.17 61%
S I 6.7 3.62 122.5 $11.00 5.43 200 3.72 44%
L 60 3.00 119 $11.00 5.00 300 3.60 49%
Q 54.5 3.67 111 $11.00 6.73 90 2.33 42%
Total Average: 76.34 3.73 142.06 4.92 551.45 4.67 45%
6




Figure 1.
Income Ovr Feed Cost Per Cow vs. Milk Per Cow
7.00
6.00
- 500
0
4.00
40 This graph shows the high correlation
tMbettween the two variables (R2=.887). As
3.00 nilk p, lucioi i pw v ,i it-s.n, Gi
Margin also Increases. If you see two ta farms that have about the same milk
2.00
margin, that farm must have lower feed cost per cwt. of milk.
1.00 = 0.0808x 1.4949 R2 = 0.8871
0.00
40 50 60 70 80 90 100
Milk Per Cow, lb
Figure 2.
Income Over Feed Cost Per Cow vs. Feed Cost Per Cwt of Milk
7.00
6.00 4
V 5.00
0
4.00
_ __3.00_ This graph shows that as feed costs per
3.00 hundred weight increase, income over
0 feed costs per cow decreases. However,
there is some variation. If you look at two 2.00 farms that have about the same feed cost
=4-.2902x+ 11.015 per cwt. of m ilk, but one has a greater
R2 = 0.6684 gross margin, that farm is getting the
1.00 better return on their feed dollars.
0.00
4.30 4.80 5.30
Feed Cost Per Cwt of milk, $
7




Figure 3.
Effect of Cow Care on Gross Margin and on % Feed$/Milk$
70% ................................................................................................................................................................................................................................... $ 7 .00
R2 = 0.8632
6 $6.00
60% 0
$5.00 0
;50% 0 $4.00 :
_0 00 0 0 0 0
"0 $3.00
40% 0 00
" R = 0.5911
$2.00
30%
0 Feed$1Milk$ 00
* GM/Cow
20% 1 $0.00
100 110 120 130 140 150 160 170 180
Cow Care Score
8




APPENDIXB
32




Table 1.
Feed costs as a petage of milk income at various levels of milkproduction*.
Feed costs as % of milk sold
ilk/day (lbs) Feed cost/day $12/cwt J$10/cwt
____________(milk price)
40 1.92 40 48
50 2.22 37 44
60 2.50 35 42
70 2.80 33 40
80 3.11 32 39
90 3.41 31 38
100 3.70 30 37
Source: "Making Your Feed Dollars Count", J.M. Estrada and G.F Hartnel. St Could Dairy Expo95
*Adapted from Hinders, 1995.
Table 2.
Reatonshi Saa1rddtv and Protity as Feed Cast and Mil Wald40hange
4 64 0 t4 4 .M$ 140
4 70 90 19 4 12t )2
7 $0 100 )5 45259 104 313
0 40 90 > 26 LO 420 247 4
9 4* 80 2 49 *42 471 4Q9 56
10 98 100 4 37 4*6 't'43 2*6 4)7
11 tO 1t4 07 442 6 2 t44
12 99 9 O 4 397 7,22 491 707
4 ei:r4 .. A ... d....s ... ..... ......0X9-.. .......... ......
...... ... .... i~*4 .4..
.... ...t. .. .
...........
................ .%
.d aA t W.. ....4 y. iQ0.t.
*~ ~ .. .... 4< 4 f A .S. & A a. .. .4A .... ..
Source: "Focus on Profits Rather Than Feed Costs". M.J VandeHaar, Ph.D. Feed Facts, De 1997
33




TEACHING AND LEARNING PAPER SERIES
FOOD AND RESOURCE ECONOMICS DEPARTMENT
No. Title Author Date
TLP 99-1 An Introduction to the Teaching and Learning Paper Gary F. Fairchild December
Series 1999
TLP 99-2 Engaging Learners In Economic and Management Gary F. Fairchild December
Education: A Challenge To Our Profession 1999
TLP 99-3 Perspectives On Precision Agriculture: A Case Aaron Troyer December
Study of the mPower3 Company Gary Fairchild 1999
Richard Weldon
P.J. van Blokland
TLP 99-4 Perspectives In Human Resource Management: A Pavan Her December
Case Study of An Incentive Program At Tyson Allen Wysocki 1999
Foods, Inc., Jacksonville, Florida Gary Fairchild
Patrick J. Byrne
TLP 99-5 Opportunities and Challenges in Satellite Campus Ferdinand F. Wirth December
Agribusiness Management Education Suzanne D. Thormsbury 1999
TLP 99-6 Florida's Natural Growers: A Decision Case Benjamin Brown December
Allen Wysocki 1999
TLP 99-7 Russell Provisions, Distributor of Boar's Head Meagan Langford December
Deli Meat and Cheese: A Decision Case Allen Wysocki 1999
TLP 00-1 TRACER: A New Market Challenge: A Case Cara Martin January
Study of a Marketing Plan for Dow Agro Sciences Patrick Byrne 2000
Richard Weldon
Ken Buhr
TLP 00-2 Management and Advancement In A Theme-Based Nornan S. Baer January
Restaurant: A Case Study of the Ale House P.J. van Blokland 2000
Gary F. Fairchild
John E. Reynolds
TLP 00-3 Procedures For Peer Evaluation of Teaching In the Gary F. Fairchild April
Food and Resource Economics Department John E. Reynolds 2000
Tracy S. Hoover
TLP 00-4 A Beginner's Guide To Understanding Mutual Eric Garneff April
Funds P.J. van Blokland 2000
TLP 00-5 Perspective On Internet Marketing: A Case Study of Ronald Pearl August
Therapeutic Botanicals, Inc. Gary F. Fairchild 2000
Timothy G. Taylor




No. Title Author Date
TLP 00-6 Strategic Analysis of a Small Firm Competing in the Raquel Guzman August
European Mango Market Gary F. Fairchild 2000
Allen F. Wysocki
TLP 00-7 A Strategic Business Analysis of Pike Family Gerado Sol August
Nurseries Gary F. Fairchild 2000
Allen Wysocki
Karl Kepner
TLP 00-8 Using Business Simulations and Issue Debates to Gary F. Fairchild August
Facilitate Synthesis in Agribusiness Capstone Timothy G. Taylor 2000
Courses
TLP 00-9 Life Long Learning For the 21st Century Food Lois Schertz Willet September
System-Will Colleges of Agriculture Respond? 2000
TLP 00-10 A Beginner's Guide To Speculating and Hedging Blake Glass September
The Dow Contract P. J. van Blokland 2000
TLP 00-11 Designing Agribusiness Capstone Courses: Charles R. Hall October
Objectives and Strategies Gary F. Fairchild 2000
Timothy G. Taylor
Kerry Litzenberg
Gregory A. Baker
TLP 00-12 A Beginner's Guide To Understanding Risk and Blake Glass December
Portfolio Diversification P.J. van Blokland 2000
Gary Fairchild
Tim Taylor
TLP 00-13 Incorporation of Peer Learning In An Agricultural Sandra B. Wilson December
Curriculum Suzanne D. Thomsbury 2000
TLP 00-14 Observations of the Sentricon Termite Colony Melissa A. Diaz December
Elimination System and Florida Pest Control and Allen F. Wysocki 2000
Chemical Co. Gary F. Fairchild
TLP 00-15 Country Catfish Company: A Decision Case Megan Langford December
Allen Wyscoki 2000
Gary Fairchild
TLP 00-16 Overview and Swot Analysis of Ocean Spray Jacob W. Searcy December
Cranberries, Inc. -Citrus Division Gary F. Fairchild 2000
Timothy G. Taylor
Ronald H. Schmidt
TLP 00-17 The Grocery Industry Faces Change Russell Gravlee December
Allen Wysocki 2000
Gary Fairchild
2




No. Title Author Date
TLP 00-18 A Case Study of American Cyanamid Eric Bonnett December
Company and Exotic-Invasive Weed Control Timothy Taylor 2000
Gary Fairchild
TLP 00-19 Catfish Fanning and Processing: The Lifeblood of Megan Langford December
Western Alabama's Agricultural Economy Allen Wysocki 2000
Gary Fairchild
TLP 00-20 Perspective On Crop Estimation: A Case Study of Xavier A. Abufele December
Tropicana Products, Inc. Gary F. Fairchild 2000
Timothy G. Taylor
TLP 00-21 U.S.-China Trade Issues and Agreements Affecting Emesto Baron December
Agriculture Gary F. Fairchild 2000
TLP 00-22 Observations On A Scrap Recycling Firm and Matt Janes December
Comparisons Between Short-Run and Long-Run Gary F. Fairchild 2000
Financial Performance Measures
TLP 00-23 Cost/Benefit Analysis of Temik in Citrus In The Lindsey A Blakeley December
Indian River Area of Southeastern Florida Richard N. Weldon 2000
Gary F. Fairchild
TLP 00-24 Strategic Analysis of A U.S. Chicken Company Emesto Baron December
Competing In Global Markets Timothy G. Taylor 2000
Gary F. Fairchild
TLP-00-25 Perspectives In Land Valuation: A Case Study On Lauren Justesen December
Citrus Land Valuation For Prudential Agricultural John E. Reynolds 2000
Investments Timothy Taylor
Robert Degner
TLP-00-26 640-Acre Agricultural Property Appraisal In Central Lauren Justesen December
Florida John E. Reynolds 2000
TLP-00-27 200-Acre Agricultura Property Appraisal In Megan Langford December
Western Alabama John E. Reynolds 2000
TLP-00-28 Mechanical Harvesting Cost of a North Florida Barry Starnes December
Blueberry Producer Allen Wysocki 2000
P.J. van Blokland
TLP-00-29 Heading Toward the Frictionless Marketplace? Michelle Walter December
Allen Wysocki 2000
Richard Weldon
Dori Comer
3




No. Title Author Date
TLP-00-30 The Plum Pox Virus In Pennsylvania Jennifer Welshans December
Allen Wysocki 2000
Karl W. Kepner
TLP-00-31 We're Chicken: Tyson Summer Internship Kevin Walker December
Experience Allen Wysocki 2000
Karl Kepner
TLP-00-32 Rock Springs 4-H Center: Asummer FRED Tori Hersey December
Internship Allen Wysocki 2000
TLP-00-33 Launching ASN Steven Southwell December
Richard Weldon 2000
Allen Wysocki
TLP-00-34 The Marketing of A Lesser-Known Florida Fruit: William M. Gibbs December
The Case of Guava At A Florida Packer/Shipper Allen Wysocki 2000
Michael T. Olexa
TLP-00-35 The Florida Citrus Industry and PROWL 3.3 EC Brett Cooper December
Allen Wysocki 2000
P.J. van Blokland
TLP-00-36 Tyson Foods, Inc.: A Summer MAB Internship Keri Perocchi December
Allen Wysocki 2000
Karl Kepner
TLP-01-1 Publix Super Markets, Inc. : An Evaluation of the Kara Lynch May
Store Management Structure Allen Wysocki 2001
Gary Fairchild
TLP-01-2 Enhancing Buyer/Seller Relationships in the Mark A. Wade May
Classroom 2001
4




41




t, 04 1
-7
, 7*4 -, iMN
"I V -,e4 41