As profit margins wane and milk prices fail to keep up with inflation, most dairy farms find it necessary to increase herd size to stay in business, instead of continually cutting costs on smaller herds.
Across the U.S., the long-term trend for dairy farm herd size is to continually get larger. Twenty years ago, the average herd size was 78 cows, increasing to 129 by 2003. Today, the average herd size is closing in on 200 cows. However, there’s a huge deviation in herd sizes. Several states in the West now average well over 1,000 milk cows per dairy, while many states in the East remain in the low hundreds. The trend toward larger dairy herds in the West has been going on for decades. Even 20 years ago, some states, such as California, Arizona and New Mexico, were milking two to three times more cows than today’s average national herd size.In 2013, over 200 billion pounds of milk were produced in the U.S. – the most milk ever produced in a single year in the U.S. The average production per cow is now over 21,800 pounds per lactation. More than 25 percent of the nation’s milk came from just 11 counties in 2013. One was in Pennsylvania; the rest were in California, Arizona, New Mexico and Washington. The nearly unbridled expansion of milk production in the U.S. has not gone without controversy, as the dairy industry struggles with balancing supply and demand and expanding export markets while attempting to maintain a viable price for the dairy farmer.In 2000, nearly 30 percent of the milk produced in the U.S. came from herds numbering 100 cows or fewer. Today, that milk production has fallen below 20 percent, and nearly all of that milk has shifted to herds of 500 cows or more. In the three leading Northeast dairy states – New York, Pennsylvania and Vermont – there are over 13,000 licensed dairy farms, which account for over 25 percent of the total number of dairies in the U.S. Since 2000, these three states have more than doubled the number of herds milking over 500 cows, while herds numbering 100 cows or fewer have been significantly reduced.
As profit margins wane and milk prices fail to keep up with inflation, most dairy farms find it necessary to increase herd size to stay in business, instead of continually cutting costs on smaller herds. The primary driver for increasing herd size is the need to maintain or improve production efficiencies through economies of scale, which allow a dairy farm to spread production costs over more gallons of milk. Generally, as herds become larger, labor efficiencies per gallon of milk produced also improve. Today, approximately 50 percent of U.S. milk production comes from 5 percent of the dairy farms.
Most U.S. dairy farms are family-owned and operated, and it’s merely a matter of doing the math to see how many cows must be milked and how many acres of land must be farmed to support several families. With historical profit margins of only a few cents per gallon of milk, it takes many gallons of milk to support a family. A major challenge for most commercial dairy farms has been managing debt load and financial risk as the size of the operation increases, and learning how to effectively manage a growing workforce.
The larger a dairy farm grows, the more complex it becomes to manage, and everything from labor to equipment to farming to finances must be managed on the macro level. Family members must learn how to step away from the minute-by-minute, day-to-day work that they’re accustomed to doing and become true managers. Just like any large business, the management responsibilities must be divided and subdivided into multiple departments and layers.
In Eagle Bridge, New York, Randy Walker and Mark Anderson, along with Walker’s parents, Roland and Jane Walker, own and operate Land View Farms. The Walker family started the dairy in the 1950s, and as the farm grew they took Anderson on as a partner in the 1990s. Today, the dairy has a total herd size of almost 1,300 mature cows, with 1,100 milking at two locations and averaging nearly 90 pounds of milk per cow per day. Land View Farms owns or leases approximately 2,300 acres of farmland.
Operating a large dairy farm requires the same tasks as operating a small one. You have to feed and milk cows every day, as well as manage crops, feed inventories, herd health, reproduction and raising calves. But on a 1,000-cow dairy farm, you also need about two dozen employees in order to get all that work done.
Effectively managing a large, multiethnic workforce has been key to the success of Land View Farms. For many large dairy farms across the U.S., a Hispanic labor force has become necessary. Walker handles the herd management responsibilities and what he refers to as the “inside people.” Anderson takes care of the crops and machinery and manages the “outside people.”
At the main facility, over 700 cows are milked three times a day in a double-12 herringbone parlor. At the second facility, over 350 cows are milked three times a day in a double-8 parlor. Cows are being milked over 20 hours per day. There must always be competent and reliable people in the parlors. The same goes with feeding. Trucks are mixing and feeding cows at all hours of the day and night. If something breaks down, it must be fixed right away.
The farm is very attentive to the workers’ needs, such as personal time off. There’s an element of trust between the employees and their bosses, and communication is key to making it all work effectively.
The farm makes it a point to have quarterly worker meetings with their local veterinarian, Bob Ceglowski, who communicates with the employees in their native Spanish. This openness of dialogue has encouraged the Hispanic group to step up to the plate and take on key management chores, such as treating cows and mastitis management. Many of the Hispanic workers have moved up through the variety of dairy jobs and now have the knowledge and skills to run many aspects of the dairy with the full confidence of management. Anderson noted that as the dairy industry becomes more technical, there are times when he and all three Walkers must be gone from the dairy to attend meetings. They’re confident that they’re leaving the farm in competent hands.
Many of the Hispanic workers live apart from their families, who are in Guatemala or Mexico, for extended periods of time, and they send a large portion of their wages to their families. Anderson explained that the Hispanics have a small community of their own on the farm, and the farm has adapted its management to address their cultural needs. For instance, the farm has a van that’s used to transport them to and from town to purchase groceries, etc. A lunch truck comes to the dairy and provides some of their cultural cuisine.
As a result of this proactive approach to human resource management, employee turnover at the dairy is low. In fact, a key herdsperson who was hired by Walker’s father has been working on the farm for over 27 years. One of the Hispanic employees has been a key outside man for over 17 years, and many of the Hispanic employees have been working for Land View Farms for over 10 years.
Walker and Anderson agree that if you treat your employees with respect, they will reciprocate with excellent work.
According to Walker, the dairy has grown to its current size for various reasons, and not just for the sake of being big. Expansion has been driven by a combination of financial factors and lifestyle expectations and goals. Even though he loves his job, Walker wants to have time off to spend with his growing family. To do that, there must be competent, reliable employees who can take care of things while he is away. To get to that point, the herd must be large enough to gain economies of scale to support a sufficient workforce. A dairy this size runs 24/7, but people have personal lives too. The size and versatility of the workforce allow everyone to take time off.
The Walker family and Anderson have long recognized that increasing milk volume is crucial for the dairy’s survival. Walker recalls that there were 18 dairies in the neighborhood when he was still in high school; now there are only seven. As the dairy farms have sold out, it’s made sense to purchase some of that land to ensure that it remains in agriculture and available for both nutrient management requirements and growing feed.
From building a barn to purchasing land, any opportunity for expansion or capital projects is carefully analyzed for its potential to add to the financial bottom line. In 2007, the farm had the opportunity to lease a satellite dairy several miles away, allowing them to expand the herd to over 1,000 cows. Today, the smaller dairy houses only late-lactation cows, eliminating the need for heat detection and breeding there. In 2008, since everything was going well, they built additional structures.
Then came 2009.
Like many other U.S. dairies, Land View Farms lost money in 2009. Anderson says that they worked with their banker to come up with ways to cut losses in the short term. Some ideas saved them money, while others wound up costing them even more in lost milk production. They liquidated some feed inventory to pay bills, and they reduced fertilizer applications, which resulted in declining crop yields in 2010. In the end, the money that was lost was amortized over five years, with the goal that by 2015 they will be back to where they were prior to 2009.
Now Walker and Anderson meet with their financial advisor on a regular basis, searching for areas where they can continue to cut or control costs or improve efficiencies. Even now, while they’re still in the process of recovering from 2009, Walker and Anderson are not afraid to invest money where it’s needed.
A recent change was building a new barn for raising replacement heifers. Until 2012, heifers were custom-raised off the farm. They’d been talking about moving the heifers back to the farm for a long time, but were never confident they had the correct combination of manpower to do it, so they held off.
Another long-term project is developing a better method of moving manure to the fields. This has resulted in purchasing available land that’s contiguous to the dairy property, which will enable them to eventually pump it via a drag hose directly from the lagoons instead of the current process of pumping into tanks and then transporting it out to the fields. Purchasing land may seem like an expensive proposition up front, but the future cost savings are there.
Walker comments that as his parents get older, he and Anderson must start making plans for who’s going to take over the jobs and responsibilities that Roland and Jane have been handling.
Dairy farming is one of the most capital-intensive of all agribusinesses. In an industry that has historically low and volatile profit margins, financial leveraging is essential to keep a dairy running. Every dairy farm, large or small, must be aggressive in managing its finances and not be fearful of leveraging against equity.
Every department on the dairy must be looked at as a profit center. Since so many different areas have to be addressed and properly managed, dairy farmers should assemble a management team that includes at least a banker or financial advisor, a veterinarian and a nutritionist. When new structures are being considered, engineers should be brought in to advise on cow traffic and cow comfort. In the case of larger dairies, farmers need environmental consultants who are familiar with state regulations on concentrated animal feeding operations and nutrient management.
Not every dairy farm in the U.S. needs to be milking 1,000 cows or more, but in many parts of the country there are benefits to doing so. Successfully operating a dairy farm of any size in the 21st century ultimately comes down to aggressive and competent management, as well as the dedication and cooperation of many people. Investing millions of dollars in dairy farming and carrying millions of dollars’ worth of debt for multiple generations is not for the faint of heart. For most people who get into it, dairy farming is a dedicated, lifelong commitment that provides a lifestyle they would never change.
The author is a dairy nutritional consultant and works for Central Connecticut Cooperative Farmers Association in Manchester, Connecticut.