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Management intensive rotational grazing’s sense…and dollars (Research Brief #19)

Posted April 1996

What we’re seeing is a little extra money from grazing while putting in a little less labor. — Gary Frank

How can dairy farmers make their time worth more? A study sponsored by the Center for Integrated Agricultural Systems (CIAS) suggests that compared to confinement systems, management intensive grazing can turn work hours into higher profits by reducing machine, production, and feed costs. The researchers drew these conclusions by calculating the economics of five dairy simulations, ranging from a confinement-based year-round scenario, to a pasture-based, seasonal system.

Bimal RajBhandary, a CIAS agricultural economist, Gary Frank, a farm management specialist with the UW-Madison Department of Agricultural Economics, Larry Tranel, Iowa County’s UW Extension agriculture/agri-business agent, and Rick Klemme of CIAS wanted to explore how farm profits might change as farmers switch from confinement to grazing systems and reduce their investments in field equipment.

Approximately 2,500 Wisconsin farmers have adopted some form of management intensive grazing for environmental, economic, philosophical, and other reasons. The research team wanted to know whether conventional farmers could use pasture-based dairying to increase their profits without huge investments.

“A lot of dairy farmers are not generating as much income for their families as they would like. They are asking, ‘How can I take what I have and use it a little differently, so that I can make more money for my family?'” said Frank. The study addressed such questions by looking at how grazing may influence farm profits and affect the return a farmer can expect from an hour of labor.

Setting up the scenarios

The research team simulated five dairy systems based on a 50-cow, 60-cow, or 70-cow, 150-acre farm, using a confinement system as a basis of comparison. In constructing the scenarios, the researchers wanted to examine the economic factors that influence farm profits and returns to labor in conventional systems compared to pasture-based methods that incorporate seasonal calving or reduced investments in field machinery.

The five scenarios are based on three production levels (15,000, 18,000, and 21,000 lbs./cow/year.). Tables 1-4 summarize key points for the scenarios.

Based on these models, the researchers calculated expected income, expenses, and labor for each system. They based these values on estimated labor, crop, and machine costs calculated by farmers, county agents, and farm researchers, instead of actual average values from a large number of grazers.

Frank said the available data from farmers who have switched to grazing is limited. “We made the best effort to consult farmers and agents and come up with realistic numbers,” he said.

Calculating profits and returns to labor

The researchers calculated expected production values, profits, and returns to labor for each dairy scenario. Tables 1-5 shows these values for production levels of 15,000 and 18,000 lbs./cow/year.

Based on their data, the team concluded the following:

Pasture-based scenarios (both year-round and seasonal) showed higher profits compared to year-round confinement systems. However, to show a net profit, pasture-based systems need production levels near those of confinement systems.

At a production level of 15,000 pounds, none of the scenarios with full investment in machinery showed a net profit in their study. This is mainly due to relatively high overhead and operating costs.

However, once production levels reached 18,000, the pasture-based, year-round scenario showed a $3,867 higher profit compared to confinement systems. The increased profit is due to lower operating and feed costs. The seasonal scenario showed a $2,880 higher profit over a confinement system, mainly because of a 15 percent reduction in labor costs and a six percent drop in overhead costs. This is despite the fact that in the seasonal system milk production was reduced by 10 percent to reflect a shorter lactation period.

At a 21,000 pound production level, profits are still higher for the pasture-based scenarios compared to confinement systems.

“What we’re seeing is a little extra money from grazing while putting in a little less labor,” Frank says. “That means you may have a little time left over to go watch your kids play softball.”

Profits from the pasture-based systems increased even more when investments in field machinery were replaced with custom hired help.

The study predicted a profit advantage of about $9,400 over confinement systems for a pasture-based, year-round system that got rid of field equipment (at all three production levels). This profit advantage was slightly less for seasonal systems that reduced machine investments. These had profits of $8,583 and $7,788 over confinement systems for production levels of 18,000 and 21,000, respectively. The increased profits flow from a 6 to 8 percent decrease in overhead costs.

“This shows that you don’t really get profitable in rotational grazing until you bite the bullet and get rid of much of your equipment,” says Frank. Yet reducing equipment requires a commitment to grazing. “You can never buy back equipment for less than you sold it for,” he says.

Pasture-based systems (both seasonal and year-round) had generally higher returns to labor hour than confinement systems. Pasture-based seasonal systems had the highest returns to labor hour of all the scenarios.

These figures suggest that for a given hour of labor, a pasture-based system can yield a higher returns than a confinement system. For example, at an 18,000-lb. production level with full investment in machinery, the pasture-based systems showed a return of $9.66 per hour for a year-round system and $9.87 for a seasonal system, whereas the confinement scenario showed a return of only $8.95 per hour.

The returns to labor from pasture-based systems were even higher when investments in field equipment were reduced. Year-round systems were $10.73 per hour, whereas seasonal systems were the highest at $11.19. Based on these data, pasture-based systems, compared to confinement methods, may offer farmers a better profit return for their labor.

That means by switching to grazing, a farmer may get more by working less.
Is this possible?

The researchers caution farmers that the study is based on simulated dairy models rather than on numbers from actual farms. “People should realize that grazing won’t turn a poor manager into a good one, but it does hold promise for well-managed farms to increase their total income while reducing their workload slightly,” Frank said.

The study analyzes only one seasonal grazing system, a scenario that assumes a farmer has some grazing experience. In the future, the research team will look at modified seasonal systems that assume a portion of the dairy herd produces year-round. Frank said other studies will examine how increased herd size, low-cost milking parlors, and reduced building investments may affect seasonal grazing profits.

Table 1. Economic comparison: confinement versus pasture systems, based on 70 cows ($/farm/year) at 15,000 lbs./cow/year, with full machinery

Factor Confinement
year-round
Pasture
year-round
Pasture
seasonal
Income
Value of Production 158,150 157,216 141,480
Expenses
Operating 74,996 70,214 65,052
Overhead, including labor 89,413 89,395 83,227
Operator and hired labor 89,413 89,395 83,227
Profit -6,259 -2,393 -6,800
Return to labor 36,528 39,409 28,746
Return to labor

hour ($/hr)

6.40 7.07 6.07
Value of production = sales from milk, cull cows, calves, and surplus crops; Expenses = operating and overhead costs; Operating costs = costs of operating the farm, not including labor or capital asset costs; Overhead, including labor = costs associated with labor and capital (wages, depreciation and interest, rent and property taxes); Operator and hired labor = Labor time x $7.50/hour; Profit = Income – Expenses; Return to labor = Profit + Labor; Return to labor hour = (Return to labor)/labor hours required

Scenario assumptions:

Confinement systems: farm-raised feed, full investment in machinery; Pasture-based systems: grazing provides about 75 percent of the cow’s forage needs for six months; Seasonal scenarios: all calves born in a 60-day window, dairy cows milked 240-300 days and entire herd dry at least 60 days; 70 percent of cows make the breeding window and 30 percent sold as cull cows; a 10 percent reduction in milk sales due reduction in milking days;
Reduced investment scenarios assume custom hired help for crops grown on the farm.

Table 2. Economic comparison: confinement versus pasture systems, based on 70 cows ($/farm/year) at 15,000 lbs./cow/year, with reduced machinery

Factor Confinement
year-round
Pasture
year-round
Pasture
seasonal
Income
Value of Production 158,150 157,259 144,690
Expenses
Operating 74,996 69,955 67,923
Overhead, including labor 89,413 84,178 77,833
Operator and hired labor 42,787 40,514 34,257
Profit -6,259 +3,126 -1,097
Return to labor 36,528 43,640 33,160
Return to labor

hour ($/hr)

6.40 8.08 7.26
Value of production = sales from milk, cull cows, calves, and surplus crops; Expenses = operating and overhead costs; Operating costs = costs of operating the farm, not including labor or capital asset costs; Overhead, including labor = costs associated with labor and capital (wages, depreciation and interest, rent and property taxes); Operator and hired labor = Labor time x $7.50/hour; Profit = Income – Expenses; Return to labor = Profit + Labor; Return to labor hour = (Return to labor)/labor hours required

Scenario assumptions:

Confinement systems: farm-raised feed, full investment in machinery; Pasture-based systems: grazing provides about 75 percent of the cow’s forage needs for six months; Seasonal scenarios: all calves born in a 60-day window, dairy cows milked
240-300 days and entire herd dry at least 60 days; 70 percent of cows make the breeding window and 30 percent sold as cull cows; a 10 percent reduction in milk sales due reduction in milking days;
Reduced investment scenarios assume custom hired help for crops grown on the farm.

Table 3. Economic comparison: confinement versus pasture systems, based on 70 cows ($/farm/year) at 18,000 lbs./cow/year, with full machinery

Factor Confinement
year-round
Pasture
year-round
Pasture
seasonal
Income
Value of Production 183,350 182,416 164,160
Expenses
Operating 84,609 79,826 69,287
Overhead, including labor 90,298 90,280 83,550
Operator and hired labor 43,675 42,687 35,869
Profit 8,443 12,310 11,323
Return to labor 52,118 54,997 47,192
Return to labor

hour ($/hr)

8.95 9.66 9.87
Value of production = sales from milk, cull cows, calves, and surplus crops; Expenses = operating and overhead costs; Operating costs = costs of operating the farm, not including labor or capital asset costs; Overhead, including labor = costs associated with labor and capital (wages, depreciation and interest, rent and property taxes); Operator and hired labor = Labor time x $7.50/hour; Profit = Income – Expenses; Return to labor = Profit + Labor; Return to labor hour = (Return to labor)/labor hours required

Scenario assumptions:

Confinement systems: farm-raised feed, full investment in machinery; Pasture-based systems: grazing provides about 75 percent of the cow’s forage needs for six months; Seasonal scenarios: all calves born in a 60-day window, dairy cows milked 240-300 days and entire herd dry at least 60 days; 70 percent of cows make the breeding window and 30 percent sold as cull cows; a 10 percent reduction in milk sales due reduction in milking days; Reduced investment scenarios assume custom hired help for crops grown on the farm.

Table 4. Economic comparison: confinement versus pasture systems, based on 70 cows ($/farm/year) at 18,000 lbs./cow/year, with reduced machinery

Factor Confinement
year-round
Pasture
year-round
Pasture
seasonal
Income
Value of Production 183,350 182,459 167,339
Expenses
Operating 84,609 79,567 72,157
Overhead, including labor 90,298 85,063 78,156
Operator and hired labor 43,675 41,399 34,580
Profit 8,443 17,828 17,026
Return to labor 52,118 54,227 51,606
Return to labor

hour ($/hr)

8.95 10.73 11.19
Value of production = sales from milk, cull cows, calves, and surplus crops; Expenses = operating and overhead costs; Operating costs = costs of operating the farm, not including labor or capital asset costs; Overhead, including labor = costs associated with labor and capital (wages, depreciation and interest, rent and property taxes); Operator and hired labor = Labor time x $7.50/hour; Profit = Income – Expenses; Return to labor = Profit + Labor; Return to labor hour = (Return to labor)/labor hours required

Scenario assumptions:

Confinement systems: farm-raised feed, full investment in machinery; Pasture-based systems: grazing provides about 75 percent of the cow’s forage needs for six months; Seasonal scenarios: all calves born in a 60-day window, dairy cows milked 240-300 days and entire herd dry at least 60 days; 70 percent of cows make the breeding window and 30 percent sold as cull cows; a 10 percent reduction in milk sales due reduction in milking days;
Reduced investment scenarios assume custom hired help for crops grown on the farm.

Contact CIAS for more information on this research.

Published as Research Brief #19
April, 1996