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Extension > Agriculture > Dairy Extension > Business tools and budgeting > Profitability and viability of dairy farms in Minnesota

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Profitability and viability of dairy farms in Minnesota

Betty Berning

Hello! My name is Betty Berning and I am very excited to be joining the Dairy Extension Team! I grew up in Albertville, MN on a dairy farm, which my brother operates today. I live in Elk River with my husband, Wes, and one year old son, George Henry. I received my Bachelor's degree from the University of Minnesota in Agricultural and Food Business Management. My first step in the dairy world was working for AgStar Financial Services in Northwest Wisconsin. I worked primarily with dairy and crop farmers to make loans and sell insurance. After a few years, there was an opportunity to go to graduate school, so I moved to Pennsylvania. I received my Master's of Science from The Pennsylvania State University in Agricultural, Environmental and Regional Economics. Upon graduation, I moved back to Minnesota and began working at General Mills. I worked in a wide variety of roles there including senior buyer of dairy. Now, I am a member of the University of Minnesota Extension Team and my main responsibilities are to the Agricultural Business Management team.

My primary focus with Extension will be on livestock economics in the state of Minnesota. Given my background in dairy, I will be spending a fair amount of my time working with dairy producers. I am excited to work with others in the state to grow our dairy economy

Recently I collaborated with Dr. Marin Bozic to analyze the profitability and viability of dairy farms in Minnesota. We utilized Minnesota FinBin data, which is supported by the Center for Farm Financial Management at the University of Minnesota. By studying these data, we were able to draw some interesting conclusions about the dairy industry in Minnesota and the profitability of its producers.

Figure 1. Family income on MN dairies vs. US median family income: 2006-2013. Does not include 2009. Click to enlarge.

We began by comparing total income on dairy farms in Minnesota against U.S. Median Income. These numbers included income from all portions of the farm (crops, custom labor, other livestock, etc.) and non-farm income (e.g. spouse working off-farm). Regardless of number of cows, the average income for these families was above the U.S. Median Income (Figure 1). This is a good thing! Our farm families are in a good spot, or at least average, relative to other Americans. It is possible to dairy farm and provide financially for a family.

Figure 2. Net farm income from MN dairy enterprises vs. US median income: 2006-2013. Does not include 2009. Click to enlarge.

Using the same FinBin data, we took things one step further and analyzed the dairy only portion of total income. The results here were a bit more surprising (Figure 2). It was not until an operation had 150 cows that the operation's dairy income was close to that of U.S. Median income. At 50 cows, the income from a dairy enterprise was quite small, just over $10,000.

What does this mean? Simply put, if a farm wants to specialize and focus on dairy, on average a herd of 150 cows will generate approximately U.S. Median Income. With fewer cows, other options for income must be explored. The FinBin data suggest additional income typically comes in the form of crop farming, but other livestock enterprises, a spouse working off farm, or (most likely) all of these things can also contribute.

I am certainly not suggesting that there is not a place for small dairy farms. Indeed, there is a place for them. The days of a traditional 50-cow (or less) stand-alone operation, though, are past us. For one to specialize in dairy both now and in the future, more is required. Those that do decide to grow the herd will find economies of scale working for them, others may explore organic, value added, or look for ways to boost efficiency and reduce costs, but one thing we cannot expect is for the world to change for us. We must be willing to change.

In early February, a Dairy Summit was held at the University of Minnesota to discuss the future of dairy in Minnesota. University of Minnesota President, Eric Kaler spoke and urged attendees to "reject complacency." In other words, be willing to do more than just the status quo. I sincerely believe that if we can "reject complacency", we can grow the industry in Minnesota. This may come from smaller farms expanding as children come home to take over the family's operation. It may mean continuing with the same number of cows, while changing methods to either increase revenue or decrease costs. Our goals may include metrics such as milk growth, dollars of revenue generated, productivity per cow, or farm profitability, but all should result in a vibrant, energized industry.

Minnesota is a great state for dairy. We have the land base to grow our own crops and the weather is not too unpleasant (well, for the cows). The infrastructure to move and process milk efficiently is in place. Finally, there is dairy expertise here. This expertise lies in the great dairy farmers in our state, as well as in those that support them and utilize their milk! I am optimistic about growing this industry in our state and look forward to doing my part. I hope you share my enthusiasm for our dairy economy!

March 2015

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