Crop Enterprise Decisions for
Expanding Dairy Farms 

Mike Rankin
Crops and Soils Agent - Fond du Lac County
University of Wisconsin - Extension

INTRODUCTION

    When changes are anticipated in the dairy enterprise that reflect an increase in cow numbers, thought must also be given to the cropping enterprise. Milking more cows translates to needing more land for feed production and manure utilization. Additionally, labor requirements are increased or extended during certain times of the growing season. Often the current crop machinery line being used on a farm is not adequate to allow for the timely planting and harvesting of increased crop acres after an expansion in cow numbers takes place. There are several crop production options available to dairy producers who are addressing these issues as they contemplate and plan for a dairy expansion. No one option fits every situation. Before choosing a crop enterprise plan, there are a number of factors that must be addressed. These include:  land base, land productivity, land availability, current machinery line, available labor, and the individual operator’s talents and interests.

CROP ENTERPRISE OPTIONS

Option 1 Purchase additional land and machinery to meet all livestock feed and manure utilization needs

This option requires a large additional cash outlay for both land and machinery. Few, if any, operators are typically in a position to consider this option when they are usually already borrowing significant dollars to increase cow numbers and modernize facilities. This option may, however, be a realistic long-term goal for some operators with a strong equity position. The major advantage of this option is complete control over the land and timeliness of field crop operations.

Option 2 Rent additional land and purchase machinery to meet all livestock feed and manure utilization needs

Renting land in many areas of Wisconsin typically results in a much better financial scenario than buying land where both interest and principle obligations must be met. The machinery line will most likely still need to be upgraded with larger new or previously used equipment. Overall, this option may still result in a significant additional outlay of dollars.

Option 3 Options 1 or 2 but only forage is produced by the operator and all grains are purchased

This option reduces both the land and machinery requirements needed in the previous two options but allows the operator full control of the forage enterprise production system. The major disadvantage of this option is that grain purchases are now subject to seasonal and annual price fluctuations. However, buying grain "farmer to farmer" or "off the field" continues to be a good alternative in most of Wisconsin and usually offers favorable discounts compared to commercial grain dealers. Grain storage facilities will still be needed.

Option 4 Options 1, 2, or 3 for land requirements but hire some to all field operations done by a custom operator

Full-time custom operators are becoming more commonplace in Wisconsin. By utilizing their services, dairy producers can often have operations done in a timely manner and with the type of equipment that is usually unjustified for a single farm operation (even a relatively large one). Using a custom operator reduces equipment expenses, repairs, and the need for seasonal labor. The primary disadvantage of this option is that the operator is at the mercy of the custom operator’s schedule. Timely operations may also be more at risk when good weather is at a premium during planting and harvesting and the custom operator serves a large number of clients.

Option 5 Maintain only a limited acreage, or rent existing acreage, and purchase all forage and grain

With this option the operator concentrates only on the dairy enterprise and allows all cropping to be done by another party. In some cases, forages are even stored off the dairy operation and a complete total mixed ration (TMR) is delivered to the farm on a daily basis. Forage prices are usually paid based upon both amount and quality at a predetermined moisture level. Such arrangements can be very workable but the operator doing the crop operations must be dependable and have a good history of harvesting quality feed. With this option, there is no control over the crop enterprise.

Sub-Options

Joint Machinery Ownership

Anytime there is the need for machinery ownership, there may also be the option for joint ownership between multiple farm operations. Machinery and implements that have a high initial purchase price and/or are used to accomplish a specific operation often are good candidates for joint ownership with another farm operation. Corn planters, combines, and forage-making equipment are good examples of these types of equipment. There are many successful joint ownership arrangements in Wisconsin. In some cases, both the equipment and labor for the operation(s) are shared (this works exceptionally well in the case of forage harvesting). Joint ownership allows for the purchase of larger and more efficient equipment by multiple owners compared to only a single owner. Additionally, this is sometimes done at a lower cost than a single owner would have with a much smaller/older line of machinery. The success of joint machinery ownership arrangements is usually only limited by the personalities and desires of the involved parties to make it work.

Contract Acreage

Where land base is limited and nearby rental land is scarce, some Wisconsin dairy producers have employed the practice of contracting acreage. This type of arrangement is especially useful to help meet corn silage needs. The dairy operator contracts a specified corn acreage with a neighboring farm(s). The owner of the farm then produces the corn and is in charge of all operations and expenses for growing the crop. The dairy operator then comes in and harvests the crop for silage and pays the grower based on the yield at a specific moisture level (usually 65%). This type of strategy has been employed by the canning vegetable industry for many years. The price paid for the silage is predetermined and competitive with alternative crop enterprises. A detailed explanation of this type of arrangement at <http://www.uwex.edu/ces/crops/cscontra.htm>.

CROP PRODUCTION SYSTEM CONSIDERATIONS

When evaluation any of the crop production options listed previously, a number of factors must be taken into consideration. Each of these considerations must be evaluated to insure the selected cropping system is feasible.

1.    Equity Position and Cash Flow

Dairy producers in the process of modernizing facilities and increasing cow numbers do so from a wide variation in equity status and cash flow positions. Regardless of current status, the chosen crop production system must be one that will not put the entire modernization package at economic risk in the short and long term. Those operations that are marginal in equity position and cash flow are obviously not good candidates for high initial cost plans like Option 1.

2.    Current Land Base and Type of Land

The land base prior to expanding cow numbers is extremely important when determining what crop production system options to consider. In some cases, producers may be milking a modest number of cows and have substantial additional acreage for cash grain production. These situations often require little or no additional land for the purposes of feed production and manure application. In other situations, the current land base may be adequate to support the forage requirements of the proposed expansion but grain will need to be purchased (Option 3).

Rental land needs to also be considered in the land base. Rented land offers some economic advantage in terms of initial capital outlay, however, a rental agreement can easily be lost if the property is sold, there is a dispute between landlord and tenant, or if the landlord is offered more money from another potential renter. Rental agreements for land need to always be put in writing. A dairy operator’s past experience with rented land is sometimes a good indicator of whether a system like Option 2 will be successful.

Equally important to the amount of land currently and/or soon to be owned or rented is the quality and production capability of the land base. Historical yield records are needed to determine how many acres it will take to meet the feed/forage needs of the dairy herd. Based on soil type and texture, drainage, erosion susceptibility, and geographic location within the state, potential yields for corn and alfalfa vary greatly. When generating crop and feed budgets it is best to be REALISTIC, not OPTIMISTIC. Soil type and drainage may also play an important role in determining the optimum mix of forage to grow and feed. Alfalfa, for example, is much more susceptible to winterkill and soil-borne diseases on fine-textured soils that are poorly drained.

3.    Availability of Land in the Area

In some geographic locations land for rent or purchase is more available than in other areas. Where additional productive land is hard to find, this may have economic consequences from the standpoint of paying a higher purchase price/cash rent or having to move farther away from the home farmstead to acquire available land. This can increase harvest time duration and overall production costs. In these situations, looking at crop systems where the dairy operator produces only forage (Option 3) or where most to all feed is purchased-in (Option 5) may be most cost-effective if there is not already substantial acreage with the operation. Contracting corn silage acres with neighboring farms also fits well into this situation.

4.    Desire and Ability of Dairy Operator to Produce Crops and Repair Machinery

Although dairy operations involve a wealth of assets in facilities, animals, machinery, and land, they are all still managed by people. If the operator is to manage both the dairy enterprise and the crop enterprise, there must be a high level of management ability, knowledge, and desire to do both. If not, this expertise in one enterprise or the other will have to be hired. The success of the dairy enterprise is highly dependent on the success of the crop enterprise (i.e. high yields of high quality forage). If no family member in the dairy operation has the interest or ability to manage the crop enterprise and maintain equipment, or is not willing to hire that expertise on a full-time basis, it is perhaps best to look at an arrangement like Option 5 and merely concentrate on the dairy enterprise.

5.    Current Line of Machinery

Machinery needs will most likely increase if there is a significant increase in cow numbers and feed requirements. This is sometimes an additional cost that is overlooked. Machinery systems within the crop enterprise must be efficient and dependable enough to plant and harvest crops in a timely manner. Conversely, it is easy for some operators to be inflicted with "new paint" disease. Obviously, the size, age and condition of the current line of machinery will have a large impact on the additional machinery investment once the dairy farm expansion takes place. This of course assumes that additional acres will be needed.

6.    Availability of Dependable Custom Operators in the Area

The need for custom operators has increased greatly in Wisconsin during the past 10 years. This has been largely driven by the increase in large dairy operations. Forage harvesting has been a primary niche for the custom operator market. The cost of new self-propelled choppers that can harvest alfalfa and corn silage quickly are still not justified on most single large dairy operations. Employing a dependable custom operator can be extremely cost effective in these situations. Once again, it is essential that the custom operator and dairy manager have a good working relationship and understanding of expectations. Just as a good custom operator in an area can be an extreme asset, a poor custom operator can be a huge liability.

SUMMARY

The ability to supply adequate amounts of high quality feed to the dairy herd is key to the success and profitability of that operation. This is true regardless of the size of the operation. As Wisconsin dairy producers contemplate how they will compete into the next century, many will choose the option of increasing herd size and modernizing facilities to freestall/milking parlor operations. Although much time will be spent deciding what type of freestall barn and milking parlor to build, equal thought must also be given to how feed will be delivered to the cow. No right answer fits every situation. There are many options to consider and many considerations for each option. Some of the more important ones have been addressed in this paper and involve land, machinery, labor, and individual talents and personalities.

For more information contact Mike Rankin