How do big dairies make money?

I was driving by the local larger dairy farm and I got to thinking...how do they pencil out?

Local one milks about 650, I assume 3x per day.

They seem to constantly get newer tractors, manure tankers, pay loaders, harvesters, etc...

Not trying to be controversial...I am not a dairy expert by any means...I am just curious...

How much milk does an average cow yield per day?

I know how much milk costs at the store, how much does the dairy get per gallon?

They don't seem to have any side-businesses - hay, custom planting etc... - and employ quite a few people...

We are west of Albany, NY if location figures in.

Depends on all the varied costs that they incur. A few years back the big dairies here were crying that they were losing $20,000 a month. The price of milk went up and price of hay went down so didn't hear anymore. Then the voters passed a minimum wage law of $10 now and $12/hour by 2018, so the dairies are crying about labor costs now.

I know a few years back a fellow went out of the milking here in NJ.At that time he figured it out,,it was costing him 5 dollars per day per cow to milk his cows.

The short answer is maximum utilization of resources. No parking of the tractor to wash, wax, and show off. I know of one large dairy that has an 806 with supposedly 100,000 hours on it. Went on a farm tour as a Cornell Student back in the 1980's and one farm with 400 plus cows was running a pair of JD 2950's and nothing else. The help always had something to do.

I read an article in Country Folks that said on average, a 500 cow dairy can make milk 25% cheaper than a 75 cow dairy, mainly due to economies of scale. Kind of sad to see the family dairies going out - it's a tough business.
Pete

Your question is a complicated one. On average as said below, a larger dairy will have more economies of scale than a smaller one. That new tractor is less burden per cow with 650 cows vs 65. It gets used more and wears out faster, too, but that is another argument.

If milk is 16.00 a hundred (a somewhat average price the past few years, perhaps New Yorkers can weigh in more here), that is about $1.38 per gallon.

A google search showed the average New York cow made about 20,000 lb per year in 2010. Odds are it is higher now. While there are very small herds with high production, in general, the trend is for higher production in mid sized to larger herds. They tend to have newer facilities that are more comfortable to cows, and a frequently managed a bit tighter than smaller herds because people are focused more on individual tasks than one person being a great milker, cattle breeder, repair man, etc. There are many exceptions on both sides. I have a neighbor who does a fantastic job with 80 cows, and know someone who is barely hanging on with a 1000.

Hope that helps.

Economic of size they make penny's but they make a lot of them . Sometimes i wonder if they are hired help for a banker. Several grazers i know are making out ok little machinery cost and with the open winters you can push your grazing days.
One thats typical has one tractor ,haybine ,rake and round baler for crops all old but taking care of . Add to that a water wagon ,bobcat ,manure spreader and truck. He farms organic and grass fed. By not pushing the cows some are over 10 years old cutting replacement cost.Again figure your time in he's not going to get rich and he's in competition against some farmers who have government payments and bankers are more favorable to them but he likes what he does.

On my way to Florida recently, I took back roads instead of interstates from Montgomery, Alabama to Leesburg, Florida.

It was neat to see how people live in Alabama, Georgia and Florida. What I noticed was a death to the small homesteads. Many old barns and farm houses falling down. Then I saw large beautiful, well maintained cattle ranches, large horse ranches, sheep, goat farms, even a maga dairy.

So long to the small family farms. Hello to mega farms.

A guy close to me has bought up many small homestead farms. He farms thousands of acres. Recently he brought in a dozer, leveled all the old buildings on one of his properties. A day later it was all gone. Bet he is going to farm that ground this spring.
geo.

Location makes a difference in several ways ways. 1) Is the cost of land to produce the required feed for the dairy. 2) Is the price they receive for their milk. Some areas pay more than others. 3) The regulations that the dairy has to comply with. Another poster stated that they have a minimum wage law that is one regulation. Another would be manure application and the area required. Different states have different rules.

Some general things I have noticed about larger dairies.
1) They usually are well managed. Many smaller dairies get by just because they work hard and spend very little. They many times are not very efficient at what they do. Most larger dairies are efficient at just about all the things they do. An example: Local larger dairy milks 1200 head three times each day. It takes them 7 hours per milking and one hour to clean up. Five workers per shift for milking. Actually four milking and one moving the cows in and out. They earn $15 per hour. So that is $1800 per day or $1.50 per cow per day.

2) There are economies of scale in the business. Both on the sales side and the input cost side. They buy feed in multiple semi load lots. So usually their feed costs are lower. On the other side I have a cousin that milks in the Eastern part of the US and he receives a $1 a hundred weight more than a small dairy just because he ships semi load lots. He has a rolling herd average of right at 100 Lbs. so that is an extra dollar a day income. On the 1000 head they milk that means $1000 a day extra income or $300,000 per year.

3) The larger dairies require more acres of feed so the cost per acre or per ton on equipment cost is usually lower than many smaller operations.

4) Usually they keep better records than many smaller dairies. So they can manage things better with that information.

Now keep in mind that these are just "general" observations. Not all larger dairies are efficient and many smaller dairies are low cost/profitable ones too. It is that individuals having good management skills and good herdsman skills both is rare. So smaller dairies many times are weak in one area or another. The larger producing dairies can fit different skill levels in easier. The standard in most dairies is multi generations of one family working together utilizing their individual skills. This can be small or large but is trending large just because of income levels required.

I also feel that the robot milking units are just a short term trend. Either they will have to get cheaper or they will fall out of favor like the computer feeders did 15 years ago. The reason is cost per cow milked. They are not competitive with the larger dairies that use hired labor to milk with.

Now keep in mind it is the US only that I can speak about with much knowledge. Canada has a quota system that makes it totally different too. Production in Europe is totally different as well and I can not comment with any degree of accuracy about them either.

On January milk that 600+ cow dairy will be grossing over 300k in milk sales with respectable components.

Back about 20 years ago we shipped average 3000 lbs of milk a day from 75 head. I am not sure of the milk price today 15-16 cwt? Plus there are premiums for milk fat so it will take a true dairy guy to give more accurate numbers.

Those large dairys have to buy new machines based upon the number of hours they will put on a tractor. In a year they could very easily put 1000 plus hours on one machine and at that it doesn't take long to wear one out.

I don't see the robot going away. Yes, it may need to get cheaper, but hired help isn't getting cheaper either. It also isn't easy to find in places. We are seeing quite a few units put in locally... more than I would have predicted a few years ago. There is another advantage to a robot as well- it can allow a more incremental growth pattern, with a dairyman able to expand in units of 60 or 120 cows. Most new manned milking parlors can be 7 figures, and need a lot of cows through them immediately to generate cash flow. Robots can be added one unit at a time (enough for 60 head or so). This results in less cash borrowed, less on bringing in a lot of cattle with a lot of diseases from other places, and can be less overwhelming to the dairyman.

Reducing labor in dairy (and ag) has been going on for a long time. Milking parlors and freestall barns were a "fad" in their day, too.

This all makes sense...
I get the need for newer equipment...I just didn't know what their profit margins would be like...or even how much milk they would produce in a given day...
I just drive by and see the 60X120 equipment storage building they built, new wheel loader, new JD tractor (I'm thinking the local JD dealer is trying to Woo them as they have about a dozen IH's in the yard that look new to me but are probably getting worn),
It is hard to fathom that they can possibly make profit but I'm sure they do and the man who owns and manages probably has excellent business sense.
It is a different world from the 35 head dairy that occupied our place 50 years ago...or even the 75 head, family run dairy accross the street.

My 2 best friends are dairymen . One milks 450 , other milks 45 . We used to milk 40 or so ourselves. Larger place makes more efficient use of labor , land and machinery. During higher prices they make much more profit , build reserves that weather the tough times. Obviously individual operators vary but these are both basically debt free farms but the larger one always reaps higher returns . That being said the other farmer loves what he does at his level. He knows his cows , his dirt . It's not about balance sheets . They raise almost everything they need . Don't know how he got through the last two price drops but they always do. There aren't many small ones left . Eventually vertical integration will take the dairy biz .

In the short of it, it does't matter how many cows you milk or how much they produce, as long as the cost to produce it is less then the price it sells for!

I can comment on the newer equipment. At least the dairies here anyways generally put huge hours on their equipment. My 100 hp Massey came from a smaller dairy with only 3 tractors, it was 4 years old and had 4000 hours on it. When you need it to run every day and you don't really have a down season for repairs you can't keep a fleet of 10,000 hour + machines running.

Another local dairy runs their operation differently, they keep a lot of tractors around. They keep 2-3 newer ones but instead of trading every 4 years they keep them and slide them down the positions - so they use the old ones to keep hours off the new ones. End up with 10+ tractors to keep running though. Handy lots of times as there is always a machine around for something. Transmission goes? Put it on the manure pump or the bale wrapper.

Yep, milk haulers are keen about costs as well. The less stops per truck the more the hauler can make. I don't know how much the one dairy makes as an incentive but he gets a premium if the hauler only has to run between the hauler's shop, the dairy to pick up the milk, and haul to the plant. Figures the truck runs less than one third of the time versus making a couple dozen stops at smaller dairies.

i don't believe there is a simple answer to this question. It's kinda like; how are farmers making it at a time when prices are below the cost of production. by the way, i'm one of those farmers!

I read an article where a big rancher said the most useful thing he ever learned about ranching was accounting and finance. Managing money, expenses, and taxes is a skill.

Here, there are several mega dairies, vs the typical 40-75 cow ones over the last 4 decades...including ours that went from 28 to 75 cows during the same time. When I toured one that was at 1300 cows, what I noticed was that everything they had, was used every 8 hours....they raised nothing....they contracted all of their feed, planted nothing, owned no land beyond the site of the dairy, contracted their manure disposal on area farms, (as per MN regulations). Their tractors, skidloaders, TMR mixer, etc., were leased, with the understanding that if any went down, the dealer would provide a replacement within 8 hours, since cows had to be fed!

In contrast, we bought land.....450 acres over several decades, three field tractors, one loader tractor, chopper, wagons, balers, hay wagons, combine, gravity boxes, planter, grain drill, tillage equipment, drying and storage bins...ad nauseum- typical multiple equipment for a family farm, most of which gets used for 1-3 weeks per year.

I have no idea how they do. A little dairy not too far from here said they lost 35,000 out of a month's worth of a milk check, a couple months in a row. The mega dairies are mostly comprised of Belgians and Dutch, who allegedly, according to local rumor didn't have to pay taxes for the first 10 years for starting a new business here. One said he got $35 million in a government grant to get started here. There is one that got started about 15 years ago here, that now has 5 mega dairies in a 3 county area, and supposedly a 10,000 animal beef operation out west somewhere, as well as just purchasing 1,300 acres in Ohio to start another dairy. He just finished building one in the county I live in last fall. The biggest of these operations hired a successful lawyer that shut down his business to work solely for the dairy at the farm. If there is land for sale within 10 miles of any of these large operations, they buy it. They need the land to dump manure on more than anything, but they grow their corn on some of it as well. If a family wants the most money out of farmland, they have an auction where the dairies will buy it for the highest price. They all hire workers from south of the border, some legal, some not. Not hard to get replacements if they get sent back. I don't know how they make money, but they must, because they are still operating, milking, and buying every day.

For interesting read google BRAUMS DAIRY in Tuttle Okla.

Where at in Ohio?

Can't answer the money questions, but I have been to the Dairy Row farms southeast of Las Cruces NM just off I-10. There are approximately 30,000 cows spread out over about a dozen dairy farms. The economy of scale is amazing with the number of cows, barns, covered large square bales, workers, equipment, etc. I did notice some John Deere 3020 still being used with a gazillion hours on them. There is a lot of irrigated hay in the area, plenty of low cost labor plus an aroma for miles that smoothers everyone in the area, including a small town that is suing 7 of the dairies because of the smell. Read in a article that 4 million pounds of manure is deposited every 24 hrs and has to be spread. Now that is a lot of poo and we haven't even talked about the methane flatulence factor.

If you're not sure you like our dairy, just come on out and smell our "sweet dairy air".

Not sure, I just know that last fall a friend of the owner of one of the biggest told me that he had bought 1300 acres in OH, didn't ask where...

I know part of the equation is having a bankroll to support the farm. I heard a BTO say once, "If you owe the bank $100K, the bank owns you. If you owe the bank a million or more, you own the bank!" Sounds about right when you think about it.

Dairy farming is about as brutal a business as there is. Long hours, hard work, tight margins. I've got a few close friends that still milk. Prices were somewhere in the $16's per hundred weight for milk last month with an annual production per cow around here of 24000-28000 pounds. At a 30000 pound annual yield and a price of 16 per hundred that's around 4000 per cow coming in the front door. There's very little left after the bills are paid out of that. Hence, more cows. It's just like feeding steers. I figured my clear profit was around $11 per head after all costs including labor on a 10 year average. Feeding 100 head a year, that's $1100. Hence I don't feed steers any more, but if I were feeding 10,000 head per year that $11 makes a good living.

From what I understand with equipment. Most of your larger firms are leasing. The dealer maintains the equipment and they have access to an immediate replacement if it breaks down. Over the last few years, the annual price increases over two years were about what the first two years depreciation was, so you can replace every other year effectively for free. But, you never own anything. For most of us that's a bad things but in a purely business sense it may be more profitable. I know several highway mowing contractors that do the same thing.

Yeah, but that $11 is pure profit, after you've put a roof over your head, clothes on your back, food on your table, made the truck payment, paid for internet/TV/phone service, etc., and even done a few "fun" things on the side. In other words after all your "living" expenses are paid.

When you look at it in that light it's not so bad. You make it sound like you're living off that $1100 a year.

The 3000 cow dairy near me was in financial trouble 7-8 years ago...Lots that sold to them did so for cash only....They spent about 20 million on start up...They are still there so they must have pulled out of it..