Comparing production metrics and financial efficiency in production-limited dairy herds

This retrospective observational study examined the relationships between production metrics and financial efficiency on dairy farms operating within a production-limited system in Canada. In such a system, production quotas serve as the primary constraint on herd expansion. Canadian financial advisors, including accountants and lenders, predominantly use earnings before interest, taxes, depreciation, and amortization (EBITDA) as their key success metric at the herd level. For comparative purposes, they often use quota holdings measured in kilograms of butterfat rather than cow numbers as the denominator. Data were collected from 42 Canadian farms for the years 2017 through 2021. Financial statements were standardized and adjusted to account for unpaid labor and dividends. Multivariable linear regression was used to describe the relationship between 17 commonly used metrics-including those related to milk production, reproduction, transition, replacements, and turnover-and the annual EBITDA per kilogram of butterfat quota (EBITDA/kg). Milk production per cow (ECM; 39 ± 4 kg/d) was not significantly associated with EBITDA/kg (Can$1,851 ± Can$1,000; Can$1 = US$0.72). Four metrics exhibited significant associations with EBITDA/kg. Specifically, labor as a percentage of revenue, purchased feed/kg of butterfat quota, and DIM demonstrated negative associations, whereas the percentage of the herd dry between 45 and 75 d exhibited a positive association. Earnings before interest, taxes, depreciation, and amortization serves as an indicator of the efficiency with which raw materials are converted into profit. The findings suggest that higher production levels are unrelated to increased milk production efficiency within a production-limited system at the herd level. Certain management factors, such as purchased feed/kg and labor, may result in suboptimal resource use. Conversely, factors such as DIM and days dry may influence the cow's efficiency in converting feed into milk at both the cow and herd level. Although the lack of association between production and EBITDA may not apply to non-production-limited markets, expanding the focus beyond production metrics to include financial efficiency enables advisors in all markets to identify management practices that may impede optimal milk production. This research highlights the importance of collaboration between production and financial advisors. Comparing key efficiency indicators alongside EBITDA/kg will ensure that producers concentrate on areas with the greatest potential for financial improvement.