Economic Overview of the SW Center Pasture-Based Dairy (1999 - 2003)

The University of Missouri Southwest Center Dairy recently began its sixth year of operation when the first calf of the season (a heifer) hit the ground on February 4. Started in 1999, the seasonal, pasture based operation serves not only as a research and demonstration model, but also provides economic data on this alternative form of dairying. With five full years of data, we are beginning to see some consistent trends that compare favorably to private dairy operations of this type in the area.

Table 1 shows various production data for the Southwest Center Dairy. Our first year of operation began with all first calf heifers. It was quite a learning experience for us as well as for the dairy cattle. Into the second year, animals were continuing to grow, and we were still not generating our own replacements. By the third year of operation, we were finally at what can be referred to as a "steady state." That is, cows had reached mature size, we were producing our own replacements (and even had some extras to sell), our pastures were established, and our herd manager, Chris Davis, was well acclimated to the system.

Since this is a seasonal dairy, it is important to remember that certain figures represent an average over the year. For example, the hay intake of 11.2 to 13.7 lb per cow per day does not mean we fed that amount every day. During most of the grazing season, little if any hay was fed; in contrast, winter forage intake was almost entirely as hay.

In order for the economic data for the SW Center Dairy to more closely reflect what a private dairy might expect, certain adjustments were necessary. Expenses which are not actually incurred by the SW Center Dairy (i.e. taxes, insurance) or which are not easily monitored (i.e. fuel, vehicle use, labor) are obtained from the financial records of cooperating grazing dairies in the area. These "real world" numbers are denoted by an asterisk.

Economic data are shown in Tables 2, 3 and 4. Expenses depict direct cash costs in categories determined by the cooperating dairymen and recorded using QuickenŽ financial software. Costs are calculated on a per cow basis as well as a per hundredweight of milk basis.

Table 2 shows all costs involved in producing milk. Specific costs related to pasture production are further broken out in Table 3. Our data indicates that we can grow pasture for around 1.8-2.0˘ per pound of dry matter consumed. The average cost for us to produce milk over the five years of operation was $1,123/cow or $9.02/cwt; or if one considers only the "steady state" years (2001-2003), total cost to produce milk was $1,222/cow or $9.31/cwt. The increase in production cost for 2001-2003 is due in large part to increased costs to improve pastures and produce higher quality forages compared to the start up years. In contrast, a recent survey of large confinement dairies (avg. 1,485 cows/farm and greater than 20,000lb herd average) in the west showed cost of production of $10.88/cwt.

When total expenditures are subtracted from total income, the resulting operating margin averages $903/cow or $7.21/cwt. However, again these figures include the first two "start up" years as discussed above. If we focus on "steady state" years (2001-2003), operating margin is approximately $999/cow or $7.63/cwt. Keep in mind, however, that income, expenses and operating margin all vary widely from year to year and are directly influenced by factors such as milk price, feed costs, weather, government programs, etc. Our operating margin ranged from $606 to $1214/cow or $5.98 to 9.37/cwt over the five years of operation. With favorable weather for pasture growth and milk prices topping $20/cwt for part of 2004, operating margins will likely be even higher this year.

Our margin as reported here does not include replacement heifer costs; if one subtracts an average of $150/cow in annual heifer costs from the steady state operating margin above, the resulting $849/cow value compares very closely with the $848/cow operating margins of the cooperating grazing dairies which do include heifer costs.

Operating margins, as calculated here, is the amount available to the dairyperson for debt service (principal and interest), heifer replacement or development (if not already deducted), income taxes, and family living. Because debt load varies from farm to farm, individuals can better project their own net margin or profit by entering their own values for P&I, taxes, etc.

In summary, the economic data generated by the Southwest Center Dairy compares well with actual grazing dairies in the region. This is not to suggest that all dairy operations should be 60 to 80 cows, but that smaller, grazing dairies can be profitable and competitive in the dairy industry. These smaller dairies can compete with larger dairies in the arid west mainly because of the lower cost of production, typically $1.00 to $1.50/cwt lower, resulting from greater reliance on high quality pasture compared to harvested forages.

Table 1: Production Overview of Southwest Center Dairy

Table 2: Summary of Expenditures of Southwest Center Dairy

Table 3: Summary of Expenditures of Southwest Center Dairy for Forages

Table 4: Summary of Income of Southwest Center Dairy