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The Milk House

What makes a Millionaire Model Dairy Farm successful? PDF Print E-mail
Dairy basics - Management
Written by Larry Tranel   

top25This article was #11 in PDmag's Top 25 most-well read articles in 2011. Click here to jump to the article.

Summary: This online exclusive article accompanied the print article, "Making Millionaire Model dairy producers" featured in the January 1st issue of Progressive Dairyman. The web article provided information on how producers involved in the Millionaire Model Dairy Farm project were able to be successful. The author, Larry Tranel, explained the farms had several production practices in common: labor efficiency, cost-effective parlors and facilities, management intensive grazing, cross-breeding, semi-seasonal calving and dairy TRANS financial analysis.

Because this article was so popular, we asked Tranel a follow-up question:

Q: Besides every dairyman wanting to be a millionaire, why do you think dairy producers were reading this article?

A: Dairy producers, like most of us, are no doubt inspired by other people’s success. Many people inside and outside of agriculture feel there is no money in dairy farming, and many dairy producers confirm their thoughts and feelings. Young people think that getting started is just too difficult and often don’t have a long-term vision for what they want financially.

Thus, the success of this “Millionaire Model Dairy Farm” project is due to its inspiration for success; its realization of a lofty goal; and its blueprint budget for how to get there. Also the name piques readers' interest because most don’t think it is that possible to do without the inflation of land prices as part of the asset. So the article gives inspiration, hope, realization and a blueprint with benchmark numbers for how others are making the model work.
—Larry Tranel, Dairy Field Specialist, Iowa State University

[Click here or on the image above right to see the full list of the Top 25 articles of 2011. Click here to see the list from 2010.]

ARTICLE

ISU Extension’s Millionaire Model Dairy Farm Project has inspired beginning and transitioning dairy producers towards more profitable operations. Moreover, this model has proven very successful and has been a great learning experience for the producers, extension educators and the agri-business personnel working closely with them. Here, I will describe the reasons for success and production practices of these model dairy farms.

In a nutshell, the Millionaire Model Dairy Farms collectively focused on:
1) Labor efficiency
2) Cost effective parlors and facilities
3) Management intensive grazing
4) Cross-breeding
5) Semi-seasonal calving
6) Dairy TRANS financial analysis 

Labor efficiency is priority one
Cornell data correlates profitability with labor efficiency. Production per cow needs to be balanced with production per labor unit but there tends to be more profit with production per labor unit than production per cow, though both are extremely important to optimize in a dairy operation.

Labor efficiency begins with the cows and the milking parlor. Model farms typically average around 65 cows per full time labor equivalent (FTE) and average around 1.1 million pounds of milk sold per FTE annually. These are great benchmarks.

Wisconsin data gives a 2:1 labor efficiency increase in a parlor over a tie stall barn; a 3:1 labor efficiency in a freestall barn versus a tie stall barn. There is also a 2:1 demonstrated increase in labor efficiency in manure storage over daily manure hauling. And, there seems to be an increase in labor efficiency on a per cow basis with management intensive grazing, crossbred cattle and semi-seasonal calving (maybe not on a per hundredweight of milk basis).

The Millionaire Model Dairy Farm producers increased their realization over time that dairy cows are employees and that more dairy cows put on a tract of land can increase labor efficiencies for that land and labor unit if there is a labor-efficient milking parlor, feeding system and housing facility.

Labor efficiency hopefully translates into profits. The 2007 and 2009 data show average returns to labor per FTE laborer of $124,045 and $32,397 respectively and labor returns of $41.35 and $14.30 per hour respectively. The large difference is due to large milk price differences in the respective years.

Cost effective facilities
Reducing investment cost per cow is an important goal while keeping cow comfort, dry matter intake and labor efficiency in mind. Housing facilities on the millionaire model dairy farms grew as the herd and equity positions grew. Some started with little housing and even out-wintering but quickly realized the value of well-designed housing facilities.

There is a wide range of housing types used, including hoop structures, compost packs and freestalls. The bottom line for cost effective facilities is that cow comfort and dry matter intake is extremely important. Inadequate feeding facilities, lack of fresh air and water and improperly designed freestalls often inhibit milk production and thus profits.

All of the Millionaire Model Dairy Farms feed with Total (or Partial) Mixed Ration (TMR) and have manure storage. Manure storage also plays into labor efficiency. Daily hauling of manure, as is often done with tie stall barns often take twice the labor as hauling with even short-term manure storage.

A most important area for both labor efficiency and cost effective facilities on these farms is a close variation of the TRANS Iowa milking parlor. With low cost, labor efficiency and milker ergonomics in mind, these parlors are often built for $1,000 to $2,500 per stall in an existing barn, which is much cheaper than conventional parlors often at $5,000 to $15,000.

Management Intensive Grazing

The Millionaire Model Dairy Farms focus on high quality forages as the base of their ration. And, the base of their forage program is management intensive grazing (MIG), which allows these dairy producers to put high quality forage (22 percent plus protein) in front of the cows for about one-half the cost of conventional stored forages.

Dairy grazing is governed by five Golden Rules:

1) Keep the pasture vegetative and growing between 4 and 14 inches. When grazed lower, the plants need to draw heavily on root reserves for re-growth. It takes longer to grow from 1 inch to 4 inches and the plants growing points are often around the 4-inch mark for many species and not to be grazed off. Once plants are greater than 4 inches, more energy from the sun, rather than the roots, assists very rapid plant growth up until around the 12- to 14-inch mark where the plant growth begins to slow as it begins to develop seed heads to reproduce.

2) Graze the pasture quickly with 12-hour breaks in milking herds to maintain forage quality and not allow regrowth to be grazed as that further depletes root reserves.

3) Rest the stand to allow time for regrowth that may be 12 to 18 days in the spring and 30 to 45 days in late summer. Late summer rest periods are crucial to maintain sward health and reduce weed seed competition.

4) Be flexible as each grazing event and each season is different. Permanent fixed paddock systems are often the wrong size for variations of the grazing season. Use available temporary fencing technology.

5) Feed those cows as there is no such thing as free milk. Profits are turned by working on the “margin over body maintenance” meaning it takes a lot of feed to maintain a cow. Each additional 5 pounds of grain can provide enough nutrients to support an additional 10 pounds of milk and often results in a 3:1 return per each dollar spent.

Other issues of concern are that modern cows can only intake about 22 to 28 pounds of dry matter from pasture so producers need to add grain and forage supplement. A good thumb rule is a pound of grain for each 3.5 to 4 pounds of milk produced. Adding 3 to 6 pounds dry matter corn silage or hay supplement is common on higher profit farms in addition to grain and mineral supplementation. Cows on pasture are limited in that in less than eight hours, a cow needs to take about 27,000 bites to intake enough dry matter and will normally not graze longer to take more bites. So, each bite needs to be a mouthful.

Based on personal and research experience, low to no grain programs are not advised in our present dairy systems. Low milk production level herds tend to have high maintenance costs per cow relative to higher producing herds that for those same cow maintenance costs may produce 50 to 100 percent more.

During the grazing season, it is imperative to balance energy needs and not overfeed protein. The energy content of grass tends to be quite variable through the season and lower in mid-summer. Understanding pasture quality, especially energy is important for not only milk yield, but also for reproduction as energy content of pastures tends to be lowest during June (breeding season).

Degradable protein is often not limiting as it is often in excess of 22 percent. Rumen undegradable protein can be an issue without added sources. Thus, sampling pastures for well-balanced rations is a common practice among Millionaire Model Dairy Farms.

Feed quality and quantity is controlled by use of effective temporary and permanent fencing along with good lane and watering systems.

Are crossbred dairy cows a deal or no deal?
The answer “depends” on many variables. If one wants to maximize milk production per cow then the answer is “no deal” as purebred Holsteins produce around 7 to 10 percent more milk per cow than crossbred counterparts. If one wants to maximize combined fat and protein per cow the answer is less clear.

But, all the Millionaire Model Dairy Farms are using crossbreeding with the goal of cows that need less feed maintenance and herd health maintenance along with better reproduction and longevity. Three breed crosses are most advised and retain 86 percent of F1 heterosis. The following data gives credence to their decision, as does an average cull rate between 10 to 20 percent on each of the farms over time.

A Minnesota study of seven herds in California showed survival or longevity improvement. With all crossbreds, 2.6 percent died or were culled before the first milk test. With purebred Holsteins, 8.7 percent died or were culled before the first milk test. For death or cull losses through 305 days, the Holsteins were 15.9 percent and the crossbreds were less than half that at 7.4 percent.

There are many other variables to account for in the decision. For example, crossbreds can recognize an estimated 6 percent reduction in dry matter intake with equal feed efficiency compared to pure Holsteins. This 6 percent dry matter intake reduction (Holstein-Jersey cross) may equate to about three pounds of dry matter per cow per day or about 0.65 ton of dry matter per cow per year.

The cost per cow of feed savings is only about $75, which can compensate for 625 pounds of $12 per hundredweight milk or 3 percent of the milk lost versus pure Holsteins. Thus, some of the lost milk is recovered in feed cost savings. Economic values also need to be put on other traits. So, crossbreeding can be a real deal.

Semi-seasonal calving
Though there were several variations of seasonality with calving employed on these Millionaire Model Dairy Farms, all the farms over time targeted around two-thirds of the cows calving in the spring, starting in late February or March. The remaining one-third or so would be targeted for September and October. The second main goal became to not calve in July and August or late December, January and early February.

One very profitable model dairy farm at one point was milking once-a-day (can only do with Jersey-based herds) from Thanksgiving through Dec. 23 and then completely drying off the herd until calving started in February. This herd was able to get more than 80 percent of the cows bred in a six-week window. Thus, this producer demonstrated that seasonal herds are possible but a Wisconsin study has shown them to be less profitable relative to year-round milking on a whole farm basis but potentially more profitable on a per hour of labor basis.

Dairy TRANS financial analysis
Millionaire Model Dairy Farms have shared that part of their success has been due to the financial planning and benchmarking thanks to an annual financial analysis done by this author. By simply using Schedule F data and an accurate beginning and ending net worth statement, a Dairy TRANS analysis identified strengths and weaknesses to help the dairies attain higher financial performance.

Making Millionaire Model Dairy Farms
There is demonstrated opportunity in dairy farming for producers to profit with good quality of life. These Millionaire Model Dairy Farms have proven their ability to not just survive, but to thrive, even despite very tough years such as 2009 and others.

Controlling costs and understanding profitability were paramount in their success. In the end, their focus was: 1) Labor Efficiency; 2) Cost Effective Parlors and Facilities; 3) Management Intensive Grazing; 4) Cross Breeding; 5) Semi-Seasonal Calving; and 6) Dairy TRANS Financial Analysis.

Please know not all attempts using this model have been successful. Some dairies using a traditional confinement model have demonstrated comparative profit levels during this same time frame. New and transitioning producers should realize both models can be roads to success. However, the Millionaire Model Dairy Farms may be an easier and lower risk means to attaining financial and quality of life goals.  PD

–Excerpts from Iowa State University Extension publication by Dr. Larry Tranel, Extension Dairy Specialist, Iowa State University

Related resources:

Case study: Millionaire Model Dairy Farm in Dubuque, Iowa (Click to open article in a new window.)

Larry Tranel

Larry Tranel
Extension Dairy Specialist
Iowa State University
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

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