budget tool: bedding choice for new freestall barn

April 25, 2016

The bedding choice partial net present value budget tool is designed to aid dairy farmers in making bedding decisions when constructing a new freestall barn. The primary output of the tool is a comparison of annual and per hundredweight margins calculated as gross milk income less partial bedding costs (MILPBC) for three types of bedding: Inorganic bedding (sand), organic bedding (wood products on top of mattresses), and manure (deep bedded) in freestalls. Greater MILPBC represents greater profit potential when all other factors are equal. The model is based on results from Rowbotham and Ruegg (2015) which surveyed Wisconsin farms producing ≥ 25,000 pounds of milk daily which currently represent 41% of Wisconsin’s milk production.

Tool Overview

The model accounts for the value of milk as a mailbox price adjusted for quality premium and feed requirement differences among farms using different bedding types (values supplied by the user). Differences in the quantity (Table 1) and quality (Table 2) of milk produced, and the proportion of milk offered for sale (Table 2) are based on results from Rowbotham and Ruegg (2015).

Table 1. Adjusted estimates of mean rolling herd average1 by bedding type that remained in the final multivariate regression model for Wisconsin dairy farms (n = 220) producing ≥ 25,000 lbs. of milk daily and enrolled in DHI, (lbs.)

Bedding type Rolling Herd Average Number of farms
Inorganic bedding 27,362 156
Organic bedding over mattresses 25,684 43
Manure bedding 24,820 21

1Rolling Herd Average from DHI records

Table 2. Characteristics of Wisconsin dairy farms (n = 286) producing ≥ 25,000 lbs. of milk daily stratified by bedding type

Bedding type BMSCC1 Cows with milk not sold2, %
Inorganic bedding 198a 1.6a
Organic bedding over mattresses 220ab 1.9ab
Manure bedding 248b 2.4b

a,bValues within a row with different superscripts differ (Turkey-adjusted P<0.05)
1Bulk Milk Somatic Cell Count, 1,000 cells/mL (n = 230)
Includes IB (n = 156), OB (n = 49), MB (n = 25)
2Includes IB (n = XXX), OB (n = XX), MB (n = XX)

The model assumes a 30-year freestall barn lifespan where the residual value is not dependent upon bedding type. The model allows the user to provide the incremental cost and life expectancy of freestall mattresses; terms used to calculate cost of financing, value of equity, inflation, and simple tax implications; and the level of overcrowding anticipated in the new facility. Partial budget capital costs are calculated on a net present value basis.

The model also allows the user to provide input as to the frequency of bedding management and amount of labor required for several different types of bedding management tasks. Finally, the model allows the user to specify costs for each bedding type and for labor. Bedding and bedding management costs are adjusted for inflation using a user specified rate and to net present value, then annualized over the 30-year lifespan of the freestall barn.

Milk production, quality information, and bedding type from the user’s current operation are used to calculate potential production and milk quality for cows housed on each type of bedding in a new freestall barn. Milk price, including the value of premiums, but not premium rate are adjusted for inflation using the user specified rate and to net present value, then annualized over the 30-year lifespan of the freestall barn. The difference in the cost of feed associated with differences in production among different bedding types was accounted for assuming a requirement of 1/2 of a pound of additional TMR dry matter for each additional pound of milk produced using a user supplied feed cost. Incremental feed costs were also adjusted for inflation and included in the model as annualized net present values.

The initial model output of MILPBC allows the user to compare the three bedding types on an annual per cow or per stall basis, or per hundredweight of milk produced. Additionally, the model compares results on an annual MILPBC per stall for each bedding type over a wide range of values for overcrowding and production per cow. Overcrowding was selected as a variable of interest because new freestall barns are typically not filled to capacity immediately following construction. Estimates of margins per stall with different numbers of cows are presented by varying levels of overcrowding. Production level was selected as a variable of interest because larger farms typically group cows by production. Presenting relative margins over a wide range of production levels allows the user to better make decision about which groups of cows to house in the new facility.

The model does not account for factors not listed such as differences in animal health care costs which may be associated with bedding type. The cost of recycling bedding (sand or manure) on-farm is accounted for in the model by allowing the user to enter the cost of bedding as used. For new sand or other purchased bedding, this is the purchase cost (or mining cost of sand is available on-farm). For recycled sand or manure, this cost may be entered as the price for which the bedding may be sold, thus accounting for the market value of the bedding and allowing for equitable comparisons among bedding types. Costs such as different handling costs among bedding types are accounted for by allowing the user to enter the amount of labor required for each bedding management task independently for each bedding type.

Model adjustment for advanced users

Our research identified strong associations among bedding type, productivity, and milk quality. Due to greater productivity among herds using inorganic bedding, the model consistently identifies inorganic bedding as the most economical choice. The model provides and “Advanced Users” tab which allows the user to replace the default model relationships among bedding types for productivity (rolling herd average), and milk quality (SCC). If the default relationships are overridden, a warning message is displayed on each page of the model’s output.

Users may also adjust production per cow due to overcrowding. The base assumption included in the model is that production per cow does not vary with stocking density. Users may enter two values on the advanced users tab, one for overcrowding from 110 to 120% and one for overcrowding greater than 120%. For example, if 110 cows are housed in a freestall with 100 stalls, stocking density (overcrowding) is 110%. If these cows produce 95% as much milk as cows housed in the same freestall with one stall per cow, enter 0.95 as the user overcrowding factor for 110 to 120%.

Calculation Overview

Adjusted estimates of differences in milk production associated with bedding type from 220 Wisconsin dairy farms each producing ≥ 25,000 pounds of milk daily (Table 1) are used to calculate potential production of cows in a new freestall barn based upon current production levels and bedding type.

Adjusted estimates of differences in SCC associated with bedding type from 222 Wisconsin dairy farms each producing at least 25,000 pounds of milk daily (Table 2) are used to calculate potential SCC of milk from cows in a new freestall barn based upon current SCC levels and bedding type.

Capital costs of a new freestall barn are based on user input. Construction cost is calculated as cost per mattress times the number of stalls assuming the capital cost difference between deep and shallow bedded stalls is the cost of the mattress. Straight line depreciation is calculated over the user provided life of the new barn. Interest cost is amortized using user provided terms assuming a single annual payment at the end of each year. The value of equity and cash flow from tax deductions are calculated based on user inputs. All calculated values are adjusted to NPV using the user supplied cost of equity.

Annual cost of bedding and labor required to manage bedding are calculated based upon user inputs including the value of cash flow from tax deductions. Milk revenue is calculated as base price per hundredweight (user input as an annual average) plus a quality premium based upon user input SCC levels adjusted for bedding type (Rowbotham and Ruegg, Table 2).

Overcrowding is specified by the user by providing both the number of stalls and the number of cows for the new freestall barn. Comparisons of annual MILPBC per stall among bedding types are presented for overcrowding from 70% to 145%. Comparisons of annual MILBC per stall among bedding types are also presented for productivity from 65 to 150 lbs. per cow per day (to allow comparison for different groupings of cows).

Users should be aware that MILPBC is a partial budget calculation and therefore dollars per hundredweight are comparable only between scenarios presented within the model and not to market prices or margins comparing market prices to production costs.
———————–
Rowbotham, R. F. and P. L. Ruegg. 2015. Association of bedding types with management practices and indicators of milk quality on larger Wisconsin dairy farms. J. Dairy Sci. 98:7865–7885.