PRELIMINARY FOURTH YEAR SUMMARY
DRAFT
Tom Kriegl
U. W. Center For
Dairy Profitability
Abbreviated for
Full Report at
http://www.wisc.edu/dairy-profit/
General
conclusions drawn from Dairy Grazing Profitability Analyses;
1.
Management intensive rotational grazing (MIRG) is
economically competitive, probably at all sizes. In contrast to large modern confinement
systems, grazing systems can provide a family with a satisfactory amount of
dollars for family living with the size of operation that a single family can
operate with their own labor and management. About 16 of the 19 graziers in the
study are generating the amount of dollars for family living that would satisfy
most farm families. Graziers in the study also compare quite favorably with
“conventional”
2. The MIRG system is more economically flexible than the confinement system. Someone who invests in a well planned grazing operation will likely be able to recover most of their investment, if a few years later they decide to switch to a confinement system or quit farming entirely. In contrast, if you invest “from scratch” into a new confinement system, and decide to change or quit in a few years, you will be lucky to recover half of what you invested in that confinement system.
3.
MIRG is a system in which a significant amount of the
forage consumed by the cows is harvested by the cows to reduce harvesting costs
and enhance forage quality. This is the major difference between grazing
farms in this study versus many “confinement“ or
“conventional” farms in
4.
MIRG can be done with or without other practices and
technologies such as seasonal calving, milking parlors, TMRS, etc. Fully seasonal is shutting down milking
facilities at least one day each year (hopefully much more than a day to make
it worth the effort to be seasonal.)
5.
MIRG is not a reduced management system; it’s a
different management system.
6.
Making the right investment decisions always enhances profitability.
Still, a number of graziers have transitioned from “conventional” systems
quickly and successfully. A “traditional small
7.
Although many graziers are financially competitive at production levels
that are lower than found in other systems, they may be even more competitive
if they don’t sacrifice production because cost and investment savings
aren’t automatically created when production is reduced. Herds
transitioning from another system may not be able to afford much of a
production decline.
8.
The graziers which are most successful
financially are those who focus on optimizing the three factors of profit, more than worrying about
whether or not they are “real graziers”. The three factors of profit are, income generation, operating expense control and
investment control.
9.
10. The graziers with the best
financial performance had just slightly higher operating expenses per cow, more
investment per cow and much more income per cow, than the low group. The
ability to generate income is the main factor separating the top group from the
bottom group in the study.
11. Low input is not the same as
low cost per unit of output. The graziers with the lowest cost per cwt. of milk sold, use large
quantities of inputs such as fertilizer and grain as long as the income they
generate from those inputs is greater than their cost.
12. Graziers in the study who
are fully seasonal, or who don’t use DHI have considerably less desirable
financial performance on a per cow and per acre basis
than their opposites. To have the same number of dollars available for
family living from seasonal calving appears to require two times the number of
cows.
13. There is no single
measurement that tells enough about a business to make good important
comparisons or decisions without additional information from other measures. Several measures are needed
to accurately judge the financial performance of any business, but under
Introduction
The Wisconsin Grazing Dairy Analysis relies on four
years of actual financial data from 19
·
Is grazing economically viable?
·
Where does each system work best?
·
What practices make each system most viable?
·
How can each system be managed for the benefit of the families
operating them?
Selected financial performance measures of types of
graziers in the study are compared with several selected measures from the 800
plus “conventional” dairy farms, (ranging in size from 19 to 1300 cows) in the
The
FFAMIS farms include all types of
Types
of grazing dairy Farms
To be included in the study, a dairy farm practicing
management intensive rotational grazing (MIRG) had to be big enough to
potentially support a family in exchange for family labor (this doesn’t
preclude hired help). Dairy and forage
(often grass) are the major enterprises and the dairy cows graze about half of
the forage they consume. Pastures are
rotated daily in most cases. “Winter” forage is likely to be raised on the farm in a
typical year. Grain is likely to be fed
in near “conventional” amounts although grain is less likely to be raised on
the farm. Being a low or high input
operator alone doesn’t eliminate someone being considered a grazier. Young stock are
likely to graze on the farm.
A "typical" low capital grazing operation then is loosely defined for
A
transitional (high capital) grazier is one with enough land, buildings and equipment to
farm conventionally, but also has chosen the grazing practices described above
recently enough to still have the investment structure of a “conventional”
farm. The high capital or transitional grazier is more likely to raise and feed
grain in larger quantities and is less likely to practice seasonal calving.
Categorizing graziers into the low capital and high
capital or transitional categories still relies heavily on judgment. However, the key difference is that the
"ideal" low capital grazier has very little invested beyond what is
needed for a grazing operation.
Therefore their profit potential should be greater than for high capital
or transitional graziers.
The seasonal calving
strategy is an independent practice that is used extensively in combination with MIRG
in
Physical
Performance Indicators
Appendix one and two provide some physical
characteristic information about two (low capital and high capital) groups of
graziers in the study. Appendix one uses cow and acreage data from 1995, while appendix
two uses cow and acreage data from 1998.
Performance of High Vs Low
Capital Graziers Vs FFAMIS Dairy Farms
Net farm income from operations per cow (NFIFO/cow can be used to make “apples
to apples” comparison of financial performance between businesses of different
sizes. It also directly measures the
impact of two of the three most important components of profitability-operating
income and operating expense.
In this comparison, NFIFO/cow for the low capital
graziers was higher than the NFIFO/cow for the high capital graziers in 1995
and 1998 but not in 1996 and 1997. The
FFAMIS (mainly traditional) farms were lower in all four years. Interestingly enough, the NFIFO/cow trends
upward for the high capital graziers and downward for the other two groups from
1995 to 1997, before reaching the study’s
The $3063 range from the lowest (-460) to highest
(2593) NFIFO/cow value from grazing is astounding especially from a group as
small as 19 farms.
In terms of investment per cow, the high capital graziers
had the highest level in two of the first three years and in all years were
similar to the FFAMIS farms. The low
capital graziers had investment levels that were considerably lower, but not as low as most people expect. The high/low range in this measure for the
graziers in the study is also large.
The comments made about investment per cow apply to
debt per cow with two additions. In
looking at the individual grazier’s data, it’s obvious that the debt level has been
influencing profitability much more than investment levels have influenced
profitability. The FFAMIS farms
consistently had higher debt per cow levels than the high capital graziers
whose levels were much higher than the low capital graziers.
Basic cost per hundred weight of milk produced (hereafter
referred to simply as basic cost), is another useful measure. Basic costs are all the cash and non-cash
costs except interest, depreciation, labor, and management. The fact that some farms have only unpaid
labor while others pay family members or non-family hired help makes it
difficult to compare farms fairly on a total cost basis. The costs of interest, depreciation and
management also have characteristics that make direct comparisons
difficult. That is why a concept such as
basic cost is so useful (this concept has been popularized by Dr. Gary Frank of
the UW Center for Dairy Profitability).
Unfortunately an average basic cost value is not
calculated yet for each grazing group but the high and low basic costs for the
19 graziers in the study can be compared with the average basic cost of the 800
plus conventional dairy farms in the
Those who promote seasonal
calving and non-use of DHI often describe these strategies as low input.
Promoters often predict that these practices will enhance profitability because
of their “low input” nature. Unfortunately,
low input doesn’t always mean least cost per unit and least cost per unit
doesn’t always equal maximum profit.
In addition to having separated all the graziers
into low and high capital groups, the 19 graziers were also separated two other
ways to calculate the average financial performance of seasonal vs.
non-seasonal calving; and DHI use vs. non-DHI use herds in the study.
It's important to recognize that even four years of
data from 19 farms still represents a very small number of observations on
which to base solid conclusions. So when
dividing an already small number into even smaller numbers, one must be even
more cautious about conclusions. Still
in the absence of better information, one can make some comparisons knowing
that they fit those specific farms in those specific circumstances.
A careful study of all of
these comparisons within the low capital group shows that the fully seasonal,
non-DHI herds also tend to have substantially more debt per cow despite having
a lower investment per cow. When compared to their opposites among all the
graziers in the study, these graziers using the "low input"
practices had slightly less investment and debt.
While MIRG has provided
economic performance to most of the 19 graziers in the study that was competitive
with the FFAMIS farms, the graziers in the study using at least one of the “two
low input” strategies were less competitive.
Only one seasonal herd in the study generated the amount of dollars
available for family living in all four years that would satisfy most
When ranking the 19
graziers into a high, middle, and low group based on a simple average of the
four years NFIFO/cow, the following observations can be made in comparing the
high third with the low third. Most of the following statements hold true when
the graziers are ranked by their four year simple average ROROA.
1. All but two or three of the
graziers (found in the low group) are generating the amount of dollars for
family living that would satisfy many
2. NFIFO, NFIFO/Cow,
NFIFO/Acre, cash income per cow, investment per cow, and pounds of milk sold
per cow were substantially higher for the high group. Debt per cow was lower.
3.
The margin of difference between the high and low group widened
substantially from 1995-1997 for the measures of NFIFO/Cow, debt per cow, and
pounds of milk sold per cow, but narrowed in terms of investment per cow. The trend continued in 1998 for NFIFO/cow and
pounds of milk per cow but not for the other two measures.
4.
The milk price was slightly higher for the high group.
5.
The low group had a very slight advantage in dollars of cash expense
per cow with the middle group being the highest the last three years. This measurement comparison raises some very
serious questions about the fairly common belief among many graziers that the
“secret to economic success” via grazing is to control operating costs. Among this group of 19 graziers over a four
year period, the difference in operating cost per cow represents a much smaller
part of the difference in profitability than is represented by income
generation and investment control. A
closer look at individual cost components shows that a higher percentage of
cash (operating) cost as well as income is spent on interest in the low group.
6.
The low group had a few more cows in three out of four years.
7.
In most of the above comparisons, the middle group was in the
middle. The three exceptions occurred in
cash expense per cow in which they were usually higher than the other two
groups, debt per cow in which their four year average is close to the four year
average of the low group and pounds of milk sold per cow in which they were
roughly equal to the higher group.
8.
In terms of types of graziers, the six graziers in the top group
include:
·
Two low capital herds
·
Four high capital herds
·
Five DHI herds
·
No organic herds
·
No seasonal herds
9. In terms of types of
graziers, the six graziers in the middle group include:
·
Two low capital herds
·
Three high capital herds
·
Two DHI herds
·
No organic herd
·
No seasonal herds
10. In terms of types of
graziers, the seven graziers in the low group include:
·
Four low capital herds
·
Three high capital herds
·
Two DHI herds
·
One organic herd (not organic market all years)
·
Four seasonal herds
Acknowledgement
I am very grateful to the