What Are Strategies Of Successful Dairies?
MICHELLE KUNJAPPU
Lancaster Farming Staff
GRANTVILLE (Dauphin Co.)
More than 30 industry repre
sentatives involved in helping
producers make financial deci
sions came to a meeting about
farm economics at the Holiday
Inn, Grantville, Tuesday.
Normand St-Pierre, depart
ment of animal sciences, the Ohio
State University, profiled suc
cessful dairies In his discussion.
He opened by discussing U.S.
production of milk.
“Pennsylvania is the only state
east of the Mississippi River that
has outpaced the growth of the
national average,” said St-Pierre.
“Every other state east of the
Mississippi, if you held your own,
you did pretty well. The growth
has been out West. We’re fast ap
proaching the time when the
West and the Southwest will be
50 percent of the milk production
in the U.S.
“This is nqt just a little blip, a
little trend, it’s a massive
change,” he said.
St-Pierre also discussed several
facts about the dairy industry.
The per-cow net return on a large
farm is substantially higher than
small farms, he said. Larger
farms have the advantage of au
tomation in their operations.
Also, large farms are more labor
efficient, according to St-Pierre.
“On small farms, the same per
son wears about 20 different hats
on any given day. One thing that
we have learned in labor is that
people end up doing better if you
give them one small slice of
something to do. You lose effi
ciency as you keep changing
jobs.”
He defined small farms as
40-55 cows, medium farms as
100-150 cows, and large farms as
300-plus cows.
The statistics and ideas that he
presented do not sound the death
knell for small farms, however,
he pointed out.
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“Farm size, by itself, does not
guarantee success, but it does in
crease the odds,” he said. “The
top 20-30 percent of small farms
actually do quite well. They are
doing things differently than the
average small farm,” he said.
Four models of successful dair
ies include the “Uncle Scrooge,”
“Olympian Producer,” Tight
rope Walker,” and the “Family
Affair.”
The “Uncle Scrooge” dairy
manager focuses on control of ex
penses, and although the farm is
not fancy it is functional, the
cows are in good shape, and it
has good, though not outstanding
production.
The “Olympian Producer” fo
cuses on extraordinary produc
tion (more than 28,000 pounds
per cow). The competitive costs
of production are achieved by
maintaining the fixed costs but
shipping more milk. The Olympi
an Producer’s cows first freshen
at 22-24 months and produce
good milk components.
Speakers at the recent seminar included Normand St-
Pierre, Ohio State University, left, and Jeffrey Brose,
Monsanto Dairy Business.
The “Tight-rope Walker” fo
cuses on keeping all systems in
balance and is in the top third of
all production and financial
benchmarks. Their nutrition and
breeding programs are simple
and they are an active marketer
of milk, he said.
With the “Family Affair,”
“these are the people who decide,
‘it’s not just my job, it’s my life,
it’s my hobby, it’s how the family
is defined,”’ he said. “The kids
are not dragged into this (helping
at the dairy),” but share their
parents’ passion.
Since the family members
value things other than money
namely, the farming lifestyle
they pour profits from the dairy
into purchasing other farms.
“Essentially that’s how Penn
sylvania has managed to outpace
the nation” in growth, said St-
Pierre.
He encouraged the audience
that the small farms that are
profitable are “not an exclusive
club everyone can do this and
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be successful.”
However “the world has
changed, some will have to
change a little, some change a lot.
Some of the old ways of guaran
teeing your sustainability proba
bly will not work for the future,”
he said.
“Long term, there’s only four
things that can be done,” he said.
The operator can get out of the
dairy business, liquidating all as
sets. St-Pierre believes that he
would recommend this strategy
for 10 percent of operators in the
eastern dairy industry.
If the operator is advanced in
age and the facilities are in disre
pair and losing equity, this is the
best option, he believes.
The next option is to “milk it
out,” a plan which St-Pierre
would recommend to 60 percent
of operators. This calls for plan
ning an exit 10-15 years down the
road. “Stop pouring concrete”
and building any more facilities
with this option, he said.
The third choice is to “throw
money at it,” which he would ad
vise for five percent of operators.
This calls for a major expansion,
and the owner must have the
characteristics to have a success
ful expansion, he said.
“Getting off the trail” is the
next option and includes special
izing. “This may mean that you
don’t grow your own com,” he
said.
On another note, to illustrate
the analysis of alternative farm
investments, St-Pierre offered a
case study of a farm in New
York.
The farm, which received
$120,000 from timber on the
farm, had four choices for the
money: pay down debt, buy 100
cows, install milk yield recording,
or build new heifer facilities.
To assess the situation, four
tools were used the balance sheet
and profit and loss statement,
which proved to be the most use
ful, said St-Pierre, and the cash
flow statement, along with the
Lancaster Farming, Saturday, June 14, 2003-A35
statement of owner’s equity.
Analyzing the farm’s cropping
program and dairy program
showed the operation to be “pret
ty efficient” and “overall, good
dairy producers,” he said.
Further analysis took into con
sideration liquidity, solvency, and
profitability, and repayment ca
pacity.
Looking at all the options,
“put the cows in,” said St-Pierre.
“It generates the cash, generates
the profitability.”
However, with the help of a
revenue-generating quarry owned
by the farm family, in October
1996 the farm put in a new heifer
facility and later, with the help of
a loan, purchased a 100-head
herd.
“It is easier to get a lender to
agree to more cows,” said St-
Pierre, so the farm put the
$120,000 toward the heifers, then
got a loan to buy the cows. Later
they also worked a deal with an
equipment manufacturer to put
in a milk yield recording system.
The case study was meant “to
illustrate the impact of farm fi
nances, and how to evaluate” a
farm’s financial options, he said.
Although historically farmers
tend to shy away from managing
numbers, “the successful people
will have to get control of this”
because of finance’s impact on
profitability, said St-Pierre.
Also during the meeting Jef
frey Brose, DVM, technical serv
ice specialist for Monsanto Dairy
Business, discussed heat stress on
cows.
A high-producing cow may
produce more than 6,000 BTUs
of energy per hour, according to
Brose. In addition, heat produc
tion increases as milk production
increases.
Look for more of Brose’s in
formation about heat stress in the
next issue of Dairy Plus in the
June 28 issue of Lancaster
Farming.
The seminar was sponsored by
Monsanto Dairy Business.