Many novice farmers are wondering whether is dairy farming profitable and whether 2020 is a good time to start dairy business. In this article we have prepared the answer to this question. By reading it you will dispel doubts and understand what the situation on the US and international dairy farming market looks like in 2020.
At a glance:
- Dairy farming is profitable for large farms with at least several hundred cows up. Small farms are usually unprofitable.
- In 2019, the largest dairy company in the USA went bankrupt.
- From 1970 to 2017, the amount of dairy farms in the US decreased by 93%.
- Dairy processing, creativity and good marketing are opportunites for small dairy producers.
- There is no single answer to the question about profitability of dairy farming. It depends on your location, and on what scale and what type of dairy products you want to produce.
IS DAIRY FARMING PROFITABLE?
If you are a beginner and you dream about small dairy farming and basing your income on milk sales, better do not do it. In most cases, this business is highly unprofitable with a herd of less than 100 cows. According to University of Minnesota data from 2019 dairy farms with 40 – 60 cows bring big losses. Dairy farms with about 150 cows stop being lossy and begin to bring small profits. Dairy business begins to pay off and brings bigger profits with herds of 300 to 600 cows and larger.
This is due to the fact that larger farms are usually better organized, buy cheaper feed, antibiotics and other necessary items at wholesale prices, and are much more efficient than small farms.
A good example of why small dairy farms can’t face large farms is the overall cost of production (including labor and management). It’s median was $17.86 per hundredweight (cwt) of milk in 2019. For small dairy farms with 40 cows, the average production cost was as much as $28,10 per cwt of milk. The same production basket for large farms with an average of 673 cows was only $14.78 per cwt. It is not difficult to notice that the smallest farms had two times higher production cost than large farms.
In 1970, there were nearly 650,000 dairy farms in the US. In 2020, the number of dairy farms in the US is only about 40,000. The fundamental change is also that in 1987 the median number of cows per dairy farm in the USA was 80 cows, and by 2012 it increased to 900.
EVEN THE BIGGEST HAVE PROBLEMS
In 2019, Dean Foods – the largest American dairy company declared bankruptcy. As the company admitted, the reason for closing the business was the decline in consumption of cow’s milk and the growth in demand of plant milk. To understand the essence of the problem, you should realize that the cost of producing 1 gallon of milk is on average about $ 1.92. Meanwhile, milk in supermarkets costs even just $ 1 per gallon. This means that the average farmer spends more on milk production than the cheapest milk in Walmart is worth.
Additionally, as provided by the United States Department of Agriculture demand for dairy products is expected to be much lower in 2020 due to the COVID19 pandemic. In general it seems that dairy production will become cheaper and more milk will be made from plants. Therefore, realistically speaking, it must be admitted that in the future dairy farming, especially small dairy farms, will not be a profitable business.
DAIRY FARMING COSTS
Milk production costs vary widely in different countries and in different dairy farms. The average cost of production in the world in 2014 in all countries analyzed in this study was $23,3 per hundredweight (cwt) of milk ($46 per 100 kg). Production prices of hundredweight milk ranged from $2,28 per cwt ($4.5 US per 100 kg) in extensive farming systems in Cameroon (where milk was mostly side product of beef agriculture) to $59,9 per cwt of milk ($118 per 100kg) for an average sized farm in Switzerland.
Milk production costs mainly include:
-Feed – alfalfa, hay, grains, minerals, etc. -it’s costs represent about 40 to 60 % of the total cost of milk production, which is about 4 to 5 times the cost of labor.
-Labor costs – are usually the second highest cost.
-Real estate tax
-Licenses – change depending on whether you want to be a handler or distributor. Here are examples of licenses in California.
-Artificial insemination or bull’s cost
-Milking accessories: (Teat dip, Cleaning supplies, Paper towels, Milk filters, milk tubing, monthly milk tests)
-Machinery and building depreciation
TIPS FOR DAIRY FARMING BEGINNERS
- The key to maximizing profits is the quality of the dairy animals feed. If its quality is not adequate, cows will not reach their milk production potential and such a dairy farm will have a higher cost of production per cwt.
- Cows raised for dairy are usually removed from dairy herd around age six and marked for beef. Cows between 5 and 10 years of age begin to give much less milk, which is why it pays to turn them into meat.
- When you don’t have much experience, it’s better to start dairy business with stackers than with cow calfs. Cow calfs need more work, more problems to solve and more care. It’s better to start with stackers that won’t require so much work at first.
- Starting dairy farming without proper knowledge can lead to huge losses. The death of one cow is even a waste of several thousand dollars.
- Temperature extremes and heat stress can decrease cattle’s fertility and milk production.
- Dairy products come not only from high producing dairy cows but also from goats, sheeps, camels and even donkeys, yaks and horses. It is worth analyzing the possibilities of the dairy business associated with, for example, camel milk (which is even 20-30 times more expensive than cow’s milk), and with other animals. While competition on the cow’s milk market is often not easy, the market for milk from other animals can create many profitable opportunities for good niche business.
FROM DAIRY FARMING TO DAIRY PRODUCTION
Dairy farming creates great opportunities to earn money. After all, from milk, which every dairy farm produces a lot, you can create cheese, yogurt, butter, milk powder, ice cream and many other products. Profits from the production of dairy products are even greater than from the production of milk alone. Therefore, having your own dairy farm, you can produce dairy products even cheaper and then sell them with a large margin.
According to what we can learn from this Australian cheese maker, the cost of making a good cheese is up to 7 times cheaper than the price at which it is sold in stores.
For example, to start processing and selling dairy products in California, all you need is a license that costs around $100 a year.
DAIRY FARMS IN VARIOUS GEOGRAPHICAL ZONES
Profitability of dairy farming varies greatly in different countries around the world. An important condition for dairy farming to be profitable is whether you have a milk processing plant nearby, and whether the prices of buying milk there are profitable.
Successful dairy farming can occur both in a temperate climate (North America, Europe) and in a warm equatorial climate, e.g. in Africa. Depending on the temperature, it is worth providing cows with ventilation.
This is what one of the largest dairy farms in China looks like.
In this video we can see a successful dairy farm in Kenya.
During winter or drought, hydroponic plant growing for dairy animals can be a great idea. Thanks to LED lamps you can grow such sprouts indoors.
Dairy Farmers of America – https://www.dfamilk.com/
NBC News – problems of small US farmers https://www.nbcnews.com/news/us-news/best-advice-u-s-dairy-farmers-sell-out-fast-you-n887941
Statistics on dairy business, costs, and size of dairy farms in the US – https://finbin.umn.edu/
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