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Time trends in dairy profitability

Randy Pepin, Extension Educator, Todd County

Published in Dairy Star June 23, 2012

What has happened over the last few years in dairy profitability, especially in our smaller herds? Some farmers claim that it is tougher to make a living dairy farming than a few years ago; others say the financial opportunity is good in the dairy business. We have fewer dairy farmers in the business, yet our total milk production keeps on growing. Feed and energy, two of the major inputs into the dairy system, have increased dramatically the last few years. So what are the trends?

For our financial dairy information, we can use Minnesota FinBin, a historical collection of financial data from farmers across Minnesota enrolled in the Farm Business Management system. In FinBin, we are able to examine up to nineteen years of historical data and observe trends and changes. I also looked at U.S. Census Bureau statistics comparing median household income in the U.S. over a number of years. I restricted the information in FinBin to the top forty percent profitable herds rather than an average of all the herds in order to examine profit potential of dairy farms for each year and herd size.

Please refer to the chart below in reference to the following numbers. The U.S. Census Bureau median U.S. household income in 1993 was $29,244; compare that to the return to labor and management for a 50-cow herd in the top forty percent profitable herds of $28,121. This indicates that a well managed 50-cow dairy herd provided family income very comparable to a typical non-farm family in 1993. However, those same 50 cows in 2008 thru 2011 provided a return to labor and management of $26,100 while the U.S. median income was $47,022 in 2010.

Figure 1

Top 40% profitable herds

So how has it been for herds just a little bit larger? The profitability of the top forty percent profitable 100-cow herds with loose housing and a parlor has increased thirty percent over the same time. While this margin is not as large as the top forty percent 100-cow herds had in 1993 over the non-farm households, it has allowed them to maintain family living about fifty percent above the U.S. median income.

So now, what is the major observation of this analysis? The biggest change in the last eighteen years in the dairy industry has not been profitability per cow but the money necessary for family living. So what options do dairy farmers have to counteract this trend? Selling high valued genetic stock, attaining very high milk production, carry little or no debt, and milking more cows to name a few.

What about organic dairy farming you ask? Well, using the same criteria in FinBin tells us that average management with 50 cows gives us very little additional income over conventional dairy farms. However, the top forty percent organic 50-cow dairies did fair quite a bit better than the top conventional farms, but not as good as the conventional top forty percent herds with 100 cows.

If a dairy farm decides to go the expansion route, what type of system should the farm incorporate? Studies such as the one mentioned in my article Life Before and After Installing a Low-Cost Parlor published in the December 16, 2010 Dairy Star, indicate a twofold increase in labor efficiency of a parlor over a tie stall/stanchion barn. Additional positives of a well-designed parlor include saving the knees and back of the operator, operator safety, and giving the dairy farm flexibility in dealing with growing herd numbers. The loose housing required by most parlor systems also can give us additional production through increased cow comfort, especially if technologies such as sand-bedded freestalls or a compost bedding pack are incorporated.

Again, every farm has its own situation and family income needs vary. However, the trend over the last eighteen years indicates that staying with the same size herd would most likely diminish the money available for family living.

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