December 26, 2017

A New Parlor Must Demonstrate Return on Investment

 |  By: Mike Opperman

As herds expand and parlors age milking systems might need an upgrade or full replacement. That change is one of the most significant capital investments made on a dairy.

“When considering building a new parlor, one of the biggest question to ask is ‘can you do what you want with what you have,’” says Mark Reynolds, automation sales specialist with GEA. “Technology has changed significantly over the years and producers may be missing out on advancements that can help maximize their bottom line.”

There are three areas that indicate the need for a parlor change, says Mark Futcher, project coordinator and technical sales support manager at DeLaval. They are:

Stall fatigue. “Some parlors are being used well beyond their intended duty cycle,” Futcher says. Stall fatigue can lead to a monumental system failure or worse: injury to cows or workers.

Parlor is too small. “When herd size increases so does group size, which means cows spend more time in the milking process,” he says. That means more time away from feed, water and relaxation.

Desire to increase efficiencies. That could be in terms of labor, time or automation. There’s a big difference between wanting and needing a new parlor.

Convincing your lender of a solid return on investment is a first step, says Sam Miller, group head of agricultural Banking at BMO Harris Bank. “Will the new investment improve returns? Will the leap in technology improve cow care, performance and efficiency? Generally it comes down to return.”

Miller says working capital, repayment capacity and overall equity position are key components of knowing whether a dairy business is secure enough financially to take on a parlor renovation. With regard to parlor type or sophistication, Reynolds says it depends on how the producer wants to manage cows.

“That may seem like an easy question, but it can be difficult to answer.” It’s a conversation Miller says he doesn’t get involved with. “Our clients must manage the system they choose,” he says. “Their banker will analyze and make recommendations on the financial aspects, not the technology itself.”

When it comes to incorporating technology in the parlor, Miller says it’s how information will be used that really matters. “Technology can improve return on investment, despite the added cost.” He says if producers can demonstrate how data will be used, bankers are more inclined to finance technology add-ons. “If they just let the data pile up and never look at it, producers should just go with bare bones parlors.”