Grazing offers many dairy farmers an alternative way to stay profitable, according to a new study that documented the financial performance of graziers over several years.
“In contrast to a large, modern confinement system, an alternative grazing system can provide a family with a satisfactory income on a farm that one family can operate with their own labor and management,” says Tom Kriegl, a farm financial analyst with the Center for Dairy Profitability. Part of the University of Wisconsin-Extension, the Center is located at the UW-Madison College of Agricultural and Life Sciences.
Wisconsin”s dairy landscape has undergone dramatic changes during the past 10 years. The state has lost about 1,000 dairy farms a year during that period. Because of low milk prices, this year probably will be less profitable for all dairy-farming systems, according to Kriegl.
To become more competitive, some farmers have enlarged their conventional operations, in which they harvest feed for cows that remain housed in barns. But the period has also seen an increase in farmers who practice grazing, in which cows harvest most of their own forage from pastures during much of the year. In a recent study, researchers at the UW-Madison”s Program on Agricultural Technology found that 23 percent of Wisconsin dairy farmers grazed some part of their herds in 1999. That is triple the percentage of farmers who used grazing in 1993.
“A traditional, mid-sized Wisconsin dairy farm with average or better management has a good chance of improving its financial performance by judicious adoption of management-intensive rotational grazing,” Kriegl says.
Kriegl analyzed four years” worth of financial records from 19 Wisconsin farms that practice management-intensive rotational grazing (MIRG). About 16 of the 19 graziers in the study are generating enough money to satisfy most farm families, he says. In the study, graziers had an average of 54 cows, a net farm income from operations of $846 per cow, and a total net farm income from operations of about $45,680.
Kriegl cautions, however, that something less than this amount is typically available for the farm family because part of net farm income from operations — which equals the return to the farm family”s labor and management as well as equity in the business — is not in the form of cash.
The farm financial analyst also compared the graziers with a long-term study of 800 conventional Wisconsin dairy farms in the Fox Valley and Lakeshore Farm Management Associations. During the same 4-year period, those farmers averaged about $51,650 per year in net farm income from operations. They averaged about 88 cows and a net farm income from operations of about $587 per cow.
Although the number of grazing operations Kriegl analyzed appears small, he knows of only one other U.S. study that has collected information from more graziers over as many years. The Wisconsin study is possibly the only one to compare the financial performance of types of graziers, such as those who practice seasonal grazing and those who don”t. It also compares graziers who have made a transition from another dairy system with those who have practiced MIRG as long as they have farmed.
Farmers who develop a grazing operation from scratch probably have an economic advantage over those converting a conventional operation to a grazing system, according to Kriegl.
“Making the right investment decisions always enhances profitability,” he says. “Still, a number of traditional farmers have made the transition quickly and successfully. Many graziers are showing that some old barns and silos, which may be considered obsolete for large, modern confinement operations, can be valuable tools in a MIRG system if available or acquired at discounted prices.”
To get a better idea of why some graziers were more successful than others, Kriegl compared those in the study with the largest net farm income from operations per cow to those with the least.
“The graziers who are more successful financially evaluate and adopt practices that balance farm income generation with control of investment, debt and operating expenses,” Kriegl says. “There”s a fairly common belief among graziers that the secret to economic success is to control investment, debt and operating expenses.” He believes that Wisconsin graziers tend to emphasize operating cost and investment control out of proportion with generating income, while conventional Wisconsin dairy farms tend to emphasize income generation out of proportion with operating cost and investment control.
The study found that the difference in operating cost per cow represented a much smaller part of the difference in profitability than is represented by income generation and investment control. The graziers with the best financial performance had just slightly higher operating expenses per cow, more investment per cow, and much more gross income (as well as net income) per cow, compared with the low group.
“The ability to generate gross income was the main factor separating the top group of graziers from the bottom group in the study,” Kriegl says. “In addition, spending money carefully helps profitability more than just not spending.
“Although many graziers are financially competitive at production levels lower than often found in other systems, they may be even more competitive if they don”t sacrifice production,” he says. “This is especially true for farmers making the transition from a conventional to a grazing system. Because of the transition costs, they may not be able to afford much of a production decline.”
Some graziers have been moving toward seasonal calving systems to improve their quality of life. However, Kriegl found that the four-year average profitability of those seasonal-calving herds was lower than the average profitability of the non-seasonal herds. That finding held true across five economic yardsticks Kriegl used to examine profitability. Despite this, most graziers in the study were satisfied with the combination of financial performance and lifestyle that they derived from their grazing operation, regardless of calving strategy.
Grazing can be profitable for farmers milking 40 cows or 400, according to Kriegl. He believes that MIRG is economically competitive, probably at all sizes. But he is quick to point out that both systems can be profitable for farmers who make sound management decisions.
“The question is not whether grazing or confinement dairying is more profitable,” Kriegl says. “The more important question is which one will work best for your family and farm.”
Establishing a grazing operation also can reduce some financial risks that beginning farmers encounter when they enter dairying, according to Kriegl.
“Someone who invests in a well-planned grazing operation will likely be able to recover most of their investment, if they decide to switch to a confinement system or quit farming a few years later,” he says. “In contrast, if you invest from scratch in a new confinement system, you”ll be lucky to recover half your investment if you decide to change or quit in a few years.”
For a copy of the report, “Wisconsin Grazing Dairy Profitability Analysis, Preliminary Fourth Year Summary,” contact the Center for Dairy Profitability office, (608) 263-5665, or go here for an Acrobat file of the report.
The study was supported by state funding to the UW-Madison College of Agricultural and Life Sciences and the UW-Extension Cooperative Extension Service, and a grant from the UW System Agricultural and Natural Resources Consortium Cooperative Research Program.