The Dairy Industry… A Continuing Adventure

dairy-barn

Editor’s note: This post was originally published in the 2015 Farming Ag Industry Guide and has been updated for accuracy.

Nationally, the trend toward larger herd size and more milk per cow continues while more milk is being produced on fewer dairy farms. And despite 2014 being a record year for milk prices and milk production, every region of the U.S. continued to lose dairy farms. The U.S. dairy industry continues to grow as the U.S. dairy industry continues to shrink!

The average herd size continues to climb indicating that a greater number of smaller herds are leaving the industry compared to larger ones. During 2014 the Northeast region of the U.S. had fewer dairy farms leave than the rest of the nation – less than 1 percent compared to the national average of 3.5 percent. This statistic is somewhat misleading, however, since Pennsylvania increased its total dairies by 170 – something that no other state in the nation did.

The average herd size for U.S. dairy farms rose to 204 cows in 2014. However, 32 states – nearly two-thirds of U.S. states – still have average herd sizes below the national average. Of the 45,344 U.S. dairy farms still remaining, more than 29,000 of them milk less than 204 cows. Yet, those 29,000 dairies produce less than half of the nation’s total milk – meaning that more than half of the milk produced in the U.S. is produced on about one-third of the dairies milking many hundreds and even thousands of cows.

Trend toward consolidation

Whether one approves or disapproves, the dairy industry continues to move toward consolidation with fewer farms milking more cows. Large dairies can attain cost advantages over smaller farms, due to their ability to benefit from economies of scale. With the vast majority of the milk produced in the U.S. being sold under a federally regulated pricing structure, a homogeneous product like milk forces many dairy farmers to seek greater economies of scale to cover increasing operating costs. This is accomplished primarily by producing more milk per farm.

Lacking any type of supply control – which is a very unpopular topic within the U.S. dairy industry – there should be no argument that the most accurate description of the U.S. dairy industry has been for many years, and will continue to be, “survival of the fittest.” The farmers with the financial resources to expand and the business acumen to manage debt and control operating costs will stay in business while the rest of them will not. Dairy farming with herds of cows numbering in the thousands has become a rich man’s business.

Dairy farms operate like any other business. They produce a product or service that must be sold in a marketplace. The vast majority of dairy farms in the U.S. have a ready purchaser of the milk they produce through a dairy processor. So getting the milk to market is seldom a problem. However these dairy farms have little or no control over the price they receive for their milk and when the national supply outpaces the demand for dairy products, the price drops – often to a level that does not cover operating costs. When the costs outpace the revenues, the dairy is like a leaky boat; it will eventually sink.

Advantages of small farms

Unfortunately, smaller dairy farms have a distinct disadvantage in economies of scale with labor, costs of production and assets. Data collected over many years by Farm Credit East, shows that smaller dairy farms require more man-hours of labor for the milk that’s produced. Net production costs are higher on smaller dairy farms, assets needed per cow are higher on smaller dairy farms and net earnings per cow are lower with smaller dairy herds. Dairy farms are heavily capitalized businesses with animals, buildings and equipment costing many thousands of dollars. A smaller dairy herd still needs expensive tractors and farming equipment regardless of how many cows are being milked. Repairs and maintenance must come out of cash-flow and profits, which, for a small herd, can take time to accumulate into the sums needed for large capital purchases. Clearly, the deck is stacked against the survival of smaller dairy farms.

This, however, certainly doesn’t mean that every dairy farm milking 50 or 100 cows must expand or face going out of business. It has been proven over and over again that dairy farm profitability is much more dependent upon superior management than on the size of a herd and how much milk is produced. Nevertheless increased labor efficiencies, lower net cost of production and a couple of million pounds of milk per year all help in making a dairy farm profitable.

Because dairy products are relatively easy to produce, it’s also easy to create an oversupply which drives down prices for all dairy farmers. Federal pricing policy was enacted many years ago to encourage the production of fluid milk. Over the years, the per-capita consumption of fluid milk has been declining, forcing more milk to be moved into manufactured products such as cheese and yogurt. Although the demand for manufactured dairy products remains strong, dairy farmers get paid less for that milk used for those products due to the way milk is priced.

How large farms profit

Large dairy farms can produce many millions of pounds of milk per year, and while their profits may only be pennies per gallon, they profit through advantageous economies of scale. Smaller dairy farms that are located in close proximity to urban areas tend to have higher production costs due to higher land values and other increased production and cost-of-living expenses. The lower milk prices that result from a federally regulated milk pooling system heavily influenced by significant amounts of manufactured dairy products contribute to those dairies failing. Many smaller dairy farms near urban areas are resorting to and benefiting by developing value-added niche markets for their products.

In much of the U.S., milk is categorized into four groups for pricing purposes. Milk used as beverages is referred to as Class I. Milk used in yogurt and frozen desserts is Class II. Class III is milk used in the manufacture of cheese and Class IV is milk used for the production of butter and milk powder. Each class is priced differently. All regions of the country have a different mix of how milk is used.

The chart on page 10 shows that nearly 50 percent of the milk produced in the U.S. during 2013 was used for cheese. Consumers now prefer cheese as their primary source of dairy products. Yogurt is close behind. Less than one-third of milk produced nationwide is now consumed as fluid. Regions such as the southern U.S. continue to market the majority of their milk as fluid and, consequently, are paid higher prices. Ironically, more dairies are leaving the South than any other region. States such as California and Idaho do not participate in the federal pricing program and are not included here. However, those regions consist of large dairies producing more milk that’s also used for manufacturing rather than for fluid usage. (See chart, page 10.)

Powerhouse that is the dairy industry

The U.S. dairy industry is an economic powerhouse that provides an immensely popular and nutritional food to millions of consumers both within the States and around the world. Nevertheless, dairy farming faces criticism from increasing numbers of people questioning the environmental sustainability of both animal agriculture in general and large dairy farms, in particular. Larger dairies, because they have greater challenges with managing manure and preventing excessive nutrient contamination of soils and waters, are under much greater scrutiny by state and federal environmental agencies. Smaller dairy farms have managed to stay under the radar so long as they don’t pollute.

Large or small, most U.S. dairies in the U.S. are family owned and operated and family businesses are the cornerstone of many rural economies. Still, those rural economies continue to say good-bye to their dairy farms. Dairy farmers fight an unending tug-of-war with profitability year after year. Congressional lobbying by the giant food processors make sure that the U.S. government maintains its choke-hold on milk pricing. The price volatility due to chronic over-supply along with the instability and the uncertainty in export markets keeps dairy farmers on an unsure financial footing.

Even though the trend for U.S. dairy farms is to grow larger in order to stay in business, a large dairy farm has no guarantee that it will be successful. Many have overleveraged their financial position and had to call it quits. Neither does being a smaller-sized dairy farm mean that it is doomed to failure. But it can’t be operated as just a “hobby farm” on weekends.

In order for dairy farmers to be successful they must be an excellent manager of both cows and money. They must decide what size herd best fits their management capabilities as well as their capacity to take on and manage financial risk in good times and bad. And it’s becoming increasingly more critical that dairy farmers know who, what and where the market is for the milk they produce as they decide how many cows to milk.

Holistic Management

cows-grazing-in-a-field

Holistic grazing planning practices are rooted in the belief that wild herds of animals functioned to keep grasslands healthy and productive. By managing domestic livestock on the farm to mimic this behavior and positively impact soil health, our ecosystems can be restored to a healthy state where lush forages thrive.

Farmers using holistic management techniques, a practice that is growing across the nation, focus on integrating cropping and grazing practices that begin with healthy soil and end with a fully sustainable farm operation. Managing your farm operation holistically means assessing the entire operation: the social, environmental and economic impacts.

Holistic Management International (HMI, www.holisticmanagement.org), a 501(c)(3) nonprofit based in New Mexico, has developed holistic farm management decision-making tools, offers certification classes to those wishing to become educators, and provides educational services to both beginning and experienced farmers. Those services include distance learning courses, workshops, on-farm field days, and written materials and resources. HMI’s value statement says: “We believe people count, healthy land is essential, and money matters.”

While holistic management may sound esoteric, there are tangible management tools essential to the process. Graphs, charts and goal-setting exercises are used to help minimize risk, increase profitability and sustain land resources. The basic principle of holistic management is that nature functions as a whole. All environments are unique and need to be understood in order to work within them, not against them. Managing holistically requires putting some basic practices in place: an inventory of your farm, a vision statement, the development of healthy soil, an understanding of all resources available for use, a way to test decisions before they are made and results monitoring.

Phil Metzger, retired from the Natural Resources Conservation Service, has been a certified holistic management educator for over a decade. Based in Norwich, N.Y., Metzger’s experience in rural economic development and natural resource planning are instruments he now uses to mentor farmers who are interested in implementing holistic grazing planning on their farms.

“Holistic grazing planning is putting animals in the right place at the right time for the right reason,” Metzger said. “Holistic grazing planning and implementation is not a practice, but a mode of operation.”

Grazing holistically

To get started in holistic grazing planning, you must first formulate a holistic goal for the farm. Once you know what you want to achieve as a whole, then grazing planning can occur. The grazing plan works to create the landscape desired; pays attention to animal, forage and land health and production; considers the impact on profitability; takes into account your schedule with regard to animal movements; considers short and long-term results; and plans for paddock recovery periods.

“Rotational and mob grazing are practices. Holistic grazing planning is a process, which includes more than just how short to graze or how often to move animals. It is all in the plan, which is attentive to a more comprehensive impact,” Metzger said. “There is a lot to learn, usually, so after [farmers] have a holistic goal and can articulate what they are trying to create, it is OK to move on to figuring out the available forage and needs on the chart. How many acres do you have? What is your forage production? How long can you graze? What is your planned stocking rate? Look at the seasonal big picture first. What is it that you are trying to create through your grazing plan and implementation?”

Holistic grazing planning isn’t just a way to graze. It is a means to an end, and that end is the overall holistic goal of the farm. Making a holistic grazing plan involves a comprehensive grazing chart that includes the movements of the animals; other needs of the land, such as cropping and harvesting; the needs of wild animals, like grassland nesting birds; needed rest periods; available forage; and breeding or calving times. By anticipating their combined effect on the overall plan, adjustments can be made to maximize positive animal impacts.

Metzger said, “Use a chart to graph out happenings that impact your ability to manage on your farm, and start to figure out where the animals will be and when.”

Keys to planning

Holistic management utilizes several tools to assist with the assessment and monitoring of these complex interactions on the farm. Biological monitoring of the soil, along with forage assessments and inventories, are two of the tools used to help plan the grazing strategy. Holistic grazing planning is based more on plant recovery period than on grazing time. Maximizing the positive impact of grazing animals on the pasture is often more important than minimizing overgrazing.

Building healthy soil is one of the necessary practices of holistic grazing planning. Holistically building the soil requires soil cover, plant diversity, a continual live root, appropriate disturbance and adequate recovery time. Controlling just how the solar energy contained in plants is harvested is the key to being sustainable.

A biological monitoring assessment of soil health involves randomly selecting a small quadrant of land to examine. Ideally, each paddock or field will have several areas examined. Observe for bare soil. Note the plant species and overall plant health. Look for insect, earthworm or animal evidence. Take note of the height of the canopy. Seek out any evidence of erosion, log the soil characteristic, and notice any plant litter, including its stage of decomposition. This assessment provides a snapshot of where the land is now. This data is reviewed over time, and the impact of management decisions and natural factors can be assessed.

By taking a forage inventory, the stocking density for the land can be calculated. Measuring the amount of dry matter per acre can be accomplished with a pasture stick. Optimal forage has about 250 or more pounds of dry feed per acre per inch of height. Once the actual forage available is known, assume that every animal needs to consume 3 percent of its body weight per day. This calculation provides the animal days per acre, which can determine the required paddock size and stocking density. Forage health and nutritional quality will factor in making these decisions.

A key component of holistic grazing planning is regularly examining the results of your grazing strategy and adjusting it accordingly. Since a herd is always impacting the land, planning for this impact and controlling it by altering animal density, time or stocking rate of the land is necessary. A grazing chart that considers the complexity of factors associated with livestock grazing is instrumental in this process.

“Plan, monitor, adjust, monitor, adjust. It is a dynamic process that requires you to pay attention to what is going on with your animals and on the ground,” Metzger said. “Monitoring should be done at peak growth, and this will be your baseline, so each successive year you can determine if you are making progress.”

All of this planning is focused on managing the soil through animal impact and animal grazing. Minimize overgrazing, reduce labor, speed up the mineral cycle and increase the health of the land. Increasing the stocking density without sacrificing animal performance or land health while increasing profitability is the goal.

Farmer profile

Tricia Park, her husband, Matt, and son, Cameron, work their 150-acre Creekside Meadows Farm in New Woodstock, N.Y., and have found success with holistic management. In fact, Park is training to become a certified educator through HMI.

Holistic grazing planning has helped the Parks revive fields that were depleted from overuse, having been planted to alfalfa for over a decade. Within a year of implementing a holistic grazing plan, the farm experienced more biological soil activity, better forage availability and nutrition, less input usage and no forage deficits. Metzger serves as their farm mentor.

“We had excellent weight gains on our cattle, highest ever that we’ve had. Our hanging weights were 200 pounds higher than our past weights,” Park said. “We are proud of it. All this training, reading, thinking [and] experimenting has worked to our benefit. Our pastures are thick and lovely, our cattle gain weight on grass only – no grains!”

This gain came in 2012, while the region was suffering through a period of drought and forage was in short supply. Many farmers in the area, she said, ran out of grazing forage in July or August, causing hardship.

“We want more farmers to think how they can manage things for better forage. It takes some serious thinking outside the box. It is also different on every farm,” noted Park.

“Hay is expensive to buy and expensive to make, so we do what we can to keep the cattle on pasture,” she said. “The longer we can keep them out on pasture, the less work we have to do to care for them. We are still learning and experimenting [to find] what works for our farm, our climate, our cattle and our pastures.”

Stockpiling, a technique used in holistic grazing planning, allows animals to graze on pasture after the growing season. If a stockpiled forage pasture receives heavy snow before it is grazed, it can be utilized in the spring. Another management practice is winter bale grazing – putting the animals on pasture and feeding hay bales, which has been shown to increase forage production the following spring in areas where the bale grazing occurred.

“Any way we can get fertilizer – manure and urine – on the pastures with no tractor is a good thing for the bottom line of the farm. Any time we can not feed hay is a good thing for the bottom line,” Park said. “If we can do all that with just some management adjustments during the summer and still have healthy, happy cattle, it is a great thing.”

All of these practices create a land impact, Metzger said. The positive impact on drainage and fertility, caused by the animals’ hooves and the manure deposited, can positively impact soil biology, leading to higher forage production and quality as the ecosystem’s health increases. The purpose of holistic grazing planning is to manage the impact and always consider and adjust for a wide range of variables in order to reach the holistic goal.

“Everything is connected on a farm,” Metzger said. With holistic grazing planning, “You manage toward what you want, not what you don’t want.”

Holistic grazing planning increases resiliency by building a healthy soil, one that can survive an adverse event such as a flood or drought, as the basis of a healthy farm. Health in a holistic system includes more than the environment; it includes the health of the farmer and the farmer’s family, and their relationship to the community. By devising a farm grazing plan that incorporates land, people and profit, holistic grazing planning is helping to keep farmers farming, soils healthy, animals thriving and rural ecosystems intact.

The Cornerstones of Holistic Management

Holistic Management International lists four cornerstones of practicing holistic management on its website. Following are the bullet points for one of those cornerstones. To see the others, visit www.holisticman agement.org/holistic-management/121-2.

Increase Land and Animal Health and Productivity with Holistic Grazing Planning

  • Simultaneously maximize stocking rate and improve land health and productivity
  • Use livestock to improve the health of land and increase profit
  • Coordinate three primary land management tools (rest, grazing, animal impact) to grow more pasture
  • Maximize the harvest of sunlight by managing stocking rate, time, stock density and herd effect
  • Make the best plan for the season ahead to reduce your stress