As dairy producers have expanded their operations and increased their herd sizes in recent years, the initial questions often revolve around processor capacity, building requirements for expansion and financing options. However, another crucial aspect demanding significant attention is securing feed for the additional cows and managing the increased manure production. These are vital considerations during the planning phase of any dairy expansion. Indeed, access to manure application land and feed sources frequently drives key decisions for modern dairy farms.
The term “neighbor” can have different meanings, ranging from adjacent landowners to individuals located several states away. Regardless of proximity, dairy farms often seek partnerships to secure feed supplies and manage manure hauling. Over time, dairy producers have developed creative strategies with local landowners to achieve these goals. Here are some common approaches.
Renting additional land
The most straightforward method to obtain more land is to rent additional acreage for feed production and manure application. However, finding substantial amounts of suitable land near the dairy can be challenging, and purchasing significant tracts may not be financially feasible.
Custom growing agreements
Dairies can contract with neighbors to grow corn and alfalfa, purchasing the crops directly from the field at harvest. The dairy typically harvests the crops and pays for the feed by weight, with the price often linked to a predetermined market price of corn for that year. Manure is then usually applied to these fields, with the dairy often compensated for the hauling costs.
This arrangement benefits the dairy by eliminating the need to invest in more land while still accessing necessary feed. Cash crop farmers also benefit from a guaranteed market price without harvesting and drying expenses, and the earlier crop removal in the fall allows for potential wheat rotation. The challenges include convincing neighbors to occasionally grow alfalfa and ensuring landowners permit manure application, especially in the spring.
Long-term lease with right of first refusal
When renting land, dairies ideally prefer long-term leases to ensure future land availability. Some agreements include a right of first refusal, granting the dairy the option to match any offers if the property is put up for sale. This provides some long-term control for the dairy. However, if the land is sold, the dairy may only have the option to match a potentially high offer. Furthermore, many landowners are hesitant to grant a right of first refusal without upfront compensation.
Long-term lease with an option to buy
In this scenario, the dairy leases land from an owner for a specified period at a set rate, with the intention of purchasing the land at a predetermined future price. An upfront fee per acre is usually paid to the landowner for this purchase option. This offers purchase security for the dairy, especially given rising land prices. While it secures a future price, the challenge lies in whether a landowner will agree to a future price now, considering increasing land values, or if the upfront fee will be too expensive for the dairy.
Partnering with a neighbor or investor for land purchase and leaseback
Aligning with a neighbor or investor who can purchase land and lease it back to the dairy can be advantageous. With increasing farmland values over the past decade, more non-farmers are interested in land as a long-term investment. This arrangement allows the dairy to operate the land while providing the investor with a reasonable return. The difficulty lies in finding such an individual or group in the operating area.
Sourcing dry hay from distant providers
Dairies sometimes focus solely on locally produced feed. However, supplementing feed needs with a supplier located several states away can be a viable option. If dry hay is part of the feed ration, finding a consistent supplier from the western U.S., where dry hay production is often more reliable, can be beneficial. The primary challenge here is the increasing cost of transporting the feed, which must be factored into the overall cost-benefit analysis.
Ultimately, there is no simple solution to the growing need for feed as dairy operations expand. Employing creative strategies like those mentioned above can facilitate the process. Regardless of the chosen approach, establishing a mutually beneficial relationship between the dairy producer and the landowner is crucial for success. Planning a dairy expansion can be a one- to three-year process for the facility itself, and strategizing for increased feed acquisition should be an integral part of that planning.
This article is provided for information purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
