Grazing and confinement returns: A look at the numbers
Grazing dairy systems have become more than a passing curiosity in recent years. As dairy farmers move to low-input grazing systems, the question about the profitability of these systems is raised. A database1 of farm financial records provides information for comparisons of confinement and grazing systems. Five years of data are presented in the tables to help provide a more complete comparison. The number of grazing dairy farms is small.
Grazing herds are about half the size of the confinement herds (see Table 1) and milk production per cow is about 5,000 pounds less. Lower milk production is typical on grazing farms. However, lower production does not necessarily mean those farms are less profitable. A key to a profitable grazing system is having lower costs. The milk price received is greater on the grazing dairies. But, the reason for this is not clear. It could be the result of organic dairy producers being included in the grazing dairy group.
|Table 1. Production comparisons|
|Number of farms||12||16||15||12||7|
|Production per cow||15,384||15,598||15,575||15,549||15,376|
|Average milk price||12.05||15.52||12.44||13.21||17.20|
|Number of farms||245||277||517||543||549|
|Production per cow||20,276||20,052||20,301||20,225||20,401|
|Average milk price||12.15||15.07||12.54||12.91||16.36|
Financial comparisons are given in Table 2 on a hundred weight (cwt) basis. Feed costs are slightly higher on the grazing dairies as are total direct costs. It is interesting to look at the trend in net returns. From 2000 through 2003, net returns, both on a cwt and per cow basis, were higher for the grazing dairies than for the confinement dairies. The year 2004 saw returns greater on the confinement dairies. It appears as though grazing dairies do better than confinement dairies in periods of low milk price. In periods of higher milk prices, the differences in net returns between grazing and confinement systems get smaller.
A closer look at overhead costs for the grazing dairies shows there was investment in the farm. Interest expense per cow jumped from $76.22/cow in 2003 to $107.19/cow in 2004. That is an increase of 41%. Interest expense on confinement dairies actually decreased 1%.
|Table 2. Financial comparisons ($/cwt produced)|
|Total direct expenses||7.66||8.51||7.99||7.90||9.14|
|Total overhead expenses||2.49||2.84||2.54||2.75||3.08|
|Net returns per cwt||2.50||3.96||2.46||2.69||4.68|
|Net returns per cow||384.59||617.69||383.81||417.53||718.88|
|Feed cost per cwt||4.86||5.06||5.08||5.41||5.77|
|Total direct expenses||7.58||7.98||7.75||8.16||8.90|
|Total overhead expenses||2.66||3.27||3.16||3.03||3.16|
|Net returns per cwt||1.63||2.96||1.33||1.87||3.71|
|Net returns per cow||331.09||593.93||269.94||378.04||757.08|
While net returns per cwt of milk or per cow is important, so are the total dollars generated by the farming unit. There needs to be sufficient cash generated to provide an adequate standard of living for the farm family. Net returns per farm were $47,446 for the grazing dairy and $87,064 for the confinement dairy in 2004. Net returns per farm are variable for both the grazing and confinement systems.
Both grazing and confinement dairies can be profitable. It is important to keep in mind that managing a grazing system is different from managing a confinement system. People who are successful in managing grazing systems tend to pay very close attention to details. This is no different than successful confinement dairy operators. Regardless of the type of dairy system, maintaining good production and financial records, attention to detail, and a close watch on costs are needed for the farm family to stay in the dairy business.
1Database source -- http://www.finbin.umn.edu
Published in Dairy Star April 23, 2005