Dairy Sense: The "Other" Enterprise on Dairies

The current situation of milk prices not meeting the breakeven cost of production for Pennsylvania dairy producers is past the critical point for many. Often the expense side of the equation becomes the focus. The problem with that approach is making reductions in the wrong places can result in a negative impact on income. The better strategy, which is the hardest in many cases, is generating more income. Currently, the limitation for many dairy producers is the restriction on the amount of milk produced because of their production base. There is another enterprise on dairies that can provide additional income: crop sales.

The first priority for the dairy operation is to provide sufficient forages for the various animal groups. There has been a lot of basic and applied research on incorporating double cropping strategies on farms. The 2017 crop summary report from the Extension Dairy Business Management Team had 72 out of 80 farms implementing double cropping with small grain silage. The average cost per ton ranged from $56 with a 4 as-fed ton per acre yield to $28 on 9 as-fed tons per acre. Corn silage yields ranged from 14 to 24 tons per acre with a unit cost ranging from $33 to $21/ton, respectively. These prices per ton include direct and overhead costs. If yields on both crops have not been at optimal levels then this should be investigated first before exploring a cash crop revenue stream.

Corn grain and soybeans typically are the crops used for additional income. It is essential to calculate the cost to produce these grains and compare to the market prices. Based on our crop summary it cost anywhere from $2.52 to $3.78 per bushel for corn. Ninety percent of the 46 farms produced corn on rented land ranging from $60 to $157 per acre. In 2017 the bushel price for corn averaged $4.30. In 2018 the price has come down to around $3.98 per bushel. Depending on the yield, a producer could get anywhere from $0.20 to $1.50 per bushel above market price. Land rent could factor very heavily into the equation if this would be a viable strategy for generating additional income. In our analysis, land rent is charged to both the full-season crop and the double-crop, so total rent per acre is often twice the $60 to $157/acre rate.

Thirty-four farms, with 80 percent on rented land, raised soybeans for $5.65 to $8.96 per bushel. The average market price in 2017 was approximately $9.39 per bushel, which leaves a difference of $0.43 to $3.74 potential income per bushel. The average rate for rented land went from $58 to $129 per acre. For operations with good yields and cost control, there is the potential for substantial income from either corn, beans or both. The next question is how many acres are needed to generate enough additional income to help cover the dairy enterprise during tough times.

For an average herd size of 75 milk cows, additional income of $15,000 can help improve the whole farm’s breakeven cost of production. To achieve this amount using soybean yields of 67 bushel per acre with a home raised cost of $5.65 per bushel, approximately 60 acres are needed. On the other hand, for corn grain, assuming 200 bushels per acre with a home raised cost of $2.52 per bushel, 50 acres are needed to generate the same income. These scenarios are assuming optimal yields and excellent cost control.

Knowing one’s numbers is highly important when making decisions for the dairy and cropping enterprise. A well thought out plan with realistic numbers is required. Start out by doing a cash flow plan to determine how much short fall the operation has and then move forward with the cropping plan to evaluate the details to achieve the additional income needed.

Action plan for evaluating the cropping enterprise

Goal – Determine the costs to produce home raised feeds and the potential income from crop sales.

• Step 1: Compile cropping information related to acreage, tonnage produced, costs on seed, fertilizer, chemicals, custom hire and rent.
• Step 2: Using the Penn State Excel worksheet, enter in the appropriate information to determine the cost per unit of crop grown.
• Step 3: Do a cash flow plan to determine the operation’s breakeven cost of production and how much additional income is required to generate a cash surplus.

Economic perspective:

Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows income over feed costs is a good way to check that feed costs are in line for the level of milk production. Starting with July 2014’s milk price, income over feed costs was calculated using average intake and production for the last six years from the Penn State dairy herd. The ration contained 63% forage consisting of corn silage, haylage and hay. The concentrate portion included corn grain, candy meal, sugar, canola meal, roasted soybeans, Optigen and a mineral vitamin mix. All market prices were used.

Also included are the feed costs for dry cows, springing heifers, pregnant heifers and growing heifers. The rations reflect what has been fed to these animal groups at the Penn State dairy herd. All market prices were used.

Income over feed cost using standardized rations and production data from the Penn State dairy herd.

Note: Penn State’s March milk price: $16.55/cwt; feed cost/cow: $5.64; average milk production: 84.0 lbs.

Feed cost/non-lactating animal/day.