Dairy farmers are often adding cows in an attempt to maximize milk production, no matter what the milk market does. It goes up, prodding producers to add cows in order to enhance the milk check. The milk market drops, and dairy farmers hope to increase milk output to offset the lower hundredweight (cwt) price and keep cash flowing by adding cows. Feeding additional grain to push milk production per cow higher is another common approach, no matter the cwt price. Cash flow problems related to high debt loads are often the culprit keeping dairy farmers maximizing milk.
“If you have a lot of debt per cow, on top of all of the other expenses you have to make milk, you need to get as much milk as possible per cow in order to have your cash flow be positive,” agricultural economist Jon Winsten says.
But increasing milk output as the cwt price declines goes against the basic tenets of economics and can keep farmers trapped in a cycle where cash flow needs actually inhibit making profitable decisions. And the fixed overhead cost structure of most dairy farms simply doesn’t allow farmers to respond adequately to the swings in the marketplace, Winsten says.
What is a dairy farmer to do when the overhead costs of the infrastructure needed to house, milk and feed cows, combined with the equipment needed to plant, harvest and store feed, manage manure, and keep the bedding maintained have added debt and cash flow is limited?
That’s exactly what Winsten has been studying for decades. Since the 1980s, he has researched dairy grazing systems, traveling to New Zealand and elsewhere to determine how dairy farmers can lower their overhead costs while maximizing milk per cow in an efficient and profitable manner.
Large-herd, low-overhead dairy grazing system
The solution, Winsten says, is a three-pronged strategy that puts cows out to rotationally graze well-managed pasture forages, focuses on labor efficiency and takes advantage of economies of scale to minimize the overhead costs per cwt of milk. It’s a large-herd, low-overhead (LHLO) dairy grazing strategy.
“If farmers can set up a system that has a higher ratio of value of cows and land compared to machinery, equipment and buildings, then they have the ability to have lower overhead costs per cow and per hundredweight milk production,” Winsten says.
When dairy farms are concerned with cash flow, making a reduction in milk output seems counterintuitive. But farm profits will increase if the costs per cow decrease enough to offset any reduction seen in milk per cow.
“If you can restructure your farm, where you can not only have lower overhead costs per cow – and more importantly per hundredweight of milk – you can also increase profit per cow,” Winsten says. “It’s really the cows and the land that are your revenue-producing assets.”
Substantial gains can be found via the three types of efficiency inherent in the LHLO dairy grazing system: feed, labor and capital efficiencies. The LHLO grazing system minimizes the overhead costs of equipment, buildings and machinery needed to run the dairy and increases feed and labor efficiency.
Although milk production per cow will be somewhat decreased on pasture when compared to feeding in confinement, per-cow costs of milk production also decrease when dairy farms turn to managed rotational grazing and maximize cow numbers per acre. Well-managed rotational grazing reduces feed costs and can be accomplished with low overhead costs, as cows can realistically spend most of their time outdoors – with shelter available for muddy conditions and extreme weather.
Feed efficiency is captured by maximizing nutrient intake via rotational grazing, along with “smart supplementation” with grains. Making milk from pasture focuses on allowing the cows to feed themselves. When pasture forage intake is maximized, more cows can be fed from the same acreage. Since cows are outside, cow numbers can potentially be increased up to the carrying capacity of the land. If cows are not housed in the barn but are outwintered in a sheltered bedded pack, housing would not be a limiting factor, and infrastructure costs could be minimized.
Labor efficiency is gained by reducing the need for feed mixing, feed push-ups, bedding and manure management tasks as cows are on pasture. But the most important aspect of labor efficiency in this system may be from having a “high throughput milking system, which lets you milk cows more quickly,” Winsten says. A swing parlor can allow one person to milk 80-100 cows per hour. If you can milk cows quickly, adding cows doesn’t have to add significantly to labor costs or time spent milking.
Winsten believes many dairy farms in the Northeast are capable of managing 200 or more cows with the LHLO system. When purchasing grain and stored forage from off-farm, 200 cows could be managed on 300 acres of pasture – approximately 1 and 1.5 acres per cow. Although land is limited in the region, he envisions that those with access to more land could readily manage larger herds by utilizing the LHLO system.
Because the system depends upon some economies of scale – including running more head through the milking system to get a lower per-cow cost, without adding any significant overhead costs – small herds would most likely not capture the cost-saving inherent in the system.
Seasonal calving is another aspect of the system which isn’t mandatory but would make sense for most farms. Seasonal calving adds labor efficiency, so calf rearing isn’t required year-round. Spring calving allows grazing herds to match nutrient needs with forage availability. Dairy cow nutrient requirements are at their highest level 60 days postpartum. With spring calving, the maximum nutrient availability from pasture forages will be most available when the milking herd needs it.
Winsten, who is with the nonprofit Winrock International, has been working with an expert panel of farmers, both in the Northeast and the Upper Midwest, as well as financial experts, to develop representative financial statements. His financial analysis, using milk and feed prices over the past 10 years, has shown that the average net farm income, after paying an acceptable salary to the owner/operator, tends to be around $1.40 per cwt in the LHLO dairy grazing system.
Winsten sees the LHLO dairy grazing system as an opportunity for flexibility, with less investment tied up in dairy-specific infrastructure. When milk prices are low, a dairy could opt to shift to dairy beef or to raise heifers, rather than focus on maximizing milk production and adding cows.
“The large-herd, low-overhead dairy grazing system seems to have the potential to reduce both direct and overhead costs of production, and together that is decreasing the total cost of production through the year, and making the farm more nimble to adjust to swings in milk pricing,” Winsten says. “You can, ideally, make much better decisions, based on profitability.”