Starting a 75-Cow Intensive Rotational Grazing Dairy

Joe L. Horner
State Specialist, Agricultural Business and Policy Extension
Ryan Milhollin
State Specialist, Agricultural Business and Policy Extension
Stacey A. Hamilton
State Dairy Specialist

This guide examines the financial feasibility of starting a 75-cow intensive rotational grazing dairy in Missouri. Data presented here reflect costs and conditions as of June 2020. This model was developed using assumptions, costs and benchmarking information from existing Missouri pasture-based dairies and dairy industry experts. While this farm was customized specific to Missouri, it could be adapted to conditions elsewhere. The model dairy farm is designed to use labor and capital as efficiently as possible.

Continued interest in the feasibility of starting a 75-cow grazing dairy operated by a husband and wife team instigated the development of this model farm. Users are cautioned to carefully examine the long term viability of this sized farm in their region. Rapid consolidation in dairy farming, reduced market access and increased milk hauling costs may limit long term viability of this sized model.

Farm description

A dairy cow grazing.Figure 1. The farm should be planted with annual forage and improved perennial forage varieties.

In this model dairy, the farm is a carefully selected 100-acre piece of land purchased specifically for developing a grazing dairy. It is to be located in an area where winter weather conditions and soil types allow cattle to be housed outside all year. The farm is purchased for $3,500 per acre.

  • 90 acres for paddocks
    • 1 cow per acre for 75 cows
    • 15 acres for raising heifers
  • 10 acres for farmstead and facilities
  • Permanent lanes, water lines and paddocks are established
  • No irrigation or winter housing is planned
  • A new swing-12 parabone parlor is built near the center of the farm

Herd management

The beginning herd for this dairy is assumed to include purchased crossbred dairy heifers. The heifers will be purchased with an eye to selecting cattle types best suited for grazing.

Cows are expected to be culled from the herd based on involuntary factors (e.g., death, disease, problem breeders) and voluntary factors (e.g., low milk production, disposition). Projected cow culling rates, death losses and the calving interval for the next five years are listed in Table 1. It is assumed that the average cull rate (excluding deaths) would be 25 percent in the first year and fall to 22 percent in year two. Death loss rate would be 4 percent in all years. The total herd turnover rate would be 29 percent in year one and 26 percent in the remaining years.

Table 1. Herd turnover and mortality rates.

DescriptionYear 1Year 2Year 3Year 4Year 5
Target herd size (head)7575757575
Annual cull rate, excluding deaths (%)2522222222
Annual death loss (%)44444
Calving interval (months)14.013.512.812.512.5

The entire dairy system is built around a seasonal grass-based dairy concept with a 12-month calving interval. However, higher cull rates in early years are expected when starting a dairy, which reflect the realities of beginning with commingled purchased heifers. The whole herd calving interval will drop as the hard breeders are selected out of the herd. By year four, the calving interval is expected to be 12.5 months.  

Crossbred dairy cows are specified in this grazing dairy system because of their ability to make better use of pasture and their higher reproductivity and overall hybrid vigor. They typically can be purchased for lower prices than Holsteins that are traditionally selected for their high milk production traits. In the model, replacement heifers will be raised on-farm. One-third of the heifers and cows will be bred to beef genetics. Beef cross heifers are sold for $145 each. All bull calves will be sold for $120 each, reflecting a price of mixed crossbred bull calves from dairy and beef sires.

Table 2 shows annual milk production estimates and estimated rolling herd average. In the model, 97.5 percent of the total volume of milk is sold, and 2.5 percent from fresh or treated cows is discarded or consumed by calves.

Table 2. Milk production.

DescriptionYear 1Year 2Year 3Year 4Year 5
Pounds per day40.042.045.046.046.0
365-day rolling herd average12,28912,90313,68313,92013,920

Supplementary feeds are designed to complement the characteristics of the pasture forage at a reasonable cost (see Tables 3 and 4). Hay and concentrate are purchased in the dairy model. Ten pounds of concentrate costing $280/ton delivered is fed to each cow in the parlor for the milking group. Five pounds of purchased hay or silage costing $0.10/lb of dry matter is fed as needed throughout the year to the milking group. The dry cow group is being fed 5 pounds of concentrate costing $280/ton and 20 pounds of purchased hay at $0.045/lb as needed throughout the year. Heifer feed costs vary by age, see Table 5 for more detail. Milk replacer and calf starter are used in the initial months before receiving other concentrates, pasture and hay after month 2.

Table 3. Daily milking period feed costs (Cost/cow/day).

DescriptionCost/cow/day
Purchased concentrates$1.40
Purchased hay$0.50
Total feed cost$1.90

Table 4. Daily dry cow period feed costs (Cost/cow/day).

DescriptionCost/cow/day
Purchased concentrates$0.70
Purchased hay$0.90
Total feed cost$1.60

Table 5. Daily youngstock feed costs (Cost/animal/day).

Description0–2 months2–6 months6–12 months12–24 months
Purchased concentrates$1.70$0.48$0.60$0.72
Purchased hay$0.00$0.06$0.35$0.49
Total feed cost$1.70$0.54$0.95$1.21

Milk marketing

Financial projections in this model use a farm-level gross milk price of $18.30 per hundredweight (cwt) in the first two years and $18.44 per cwt in the remaining years, including Dairy Margin Coverage payments during low price months. These price levels are considered realistic based on long-term historical milk prices, component levels and expected premiums in Missouri. Marketing costs that are deducted from the gross milk price in the model include DMC insurance ($0.15/cwt), dairy checkoff ($0.15/cwt), co-op fee ($0.20/cwt) and hauling ($0.85/cwt).

Labor management

A grazing dairy that milks two times daily will ideally plan to spend no more than 2.5 hours in the parlor per milking. Outsourcing of any necessary forage harvest is used to keep labor costs low. A husband and wife team will be employed at a salary of $42,000 per year, and no additional labor will be hired. Benefits cost for labor include only the employer’s share of Social Security and Medicare taxes. Table 6 presents a labor summary for the 75-cow model dairy. A 2 percent inflation rate is built into labor and select operating expenses in the model.

Table 6. Labor summary.

DescriptionYear 1Year 2Year 3Year 4Year 5
Full-time equivalents (FTEs) (from labor hours)2.12.12.12.12.1
Pounds milk per FTE430,791449,313476,455 484,700484,700
Annual benefits3,2133,2773,3433,4103,478
Total salaried labor42,00042,84043,69744,57145,462
Total labor cost45,21346,11747,04047,98048,940

Capital investments

Capital investments for this start-up operation are listed in Table 7. These investments include land, real estate, machinery, equipment and livestock. The total capital invested in the dairy will be $851,005 ($11,347 per cow). This includes all the minimum components necessary to make the dairy operational.

The financial success of grazing dairies depends upon keeping the capital investment and the operating expenses low. Careful farm selection is critical to minimize the investment needed and to enable low operating costs. To avoid investments in livestock housing, the farm site must have well-drained soils. To keep feed costs low, the dairy needs mostly open ground with productive soils that can be managed for high-producing pastures that can be planted with annual forage and improved perennial forage varieties.

Investments in the milking center include a milking parlor, milking equipment, holding area, utility room, milk room, rest rooms and tanks. Milking equipment includes parabone stalls designed for rapid cow flow, a flush system for the parlor, automatic take-offs, plate cooler with chilled water and a heater. The parlor is assumed to be a swing-12 parabone parlor with automatic take-offs. The basic philosophy of most graziers carries over to the milking parlor. They want a facility that is both inexpensive and efficient and can be updated or improved as cash flow permits. Parabone swing parlors were used to promote production efficiency by emphasizing cow comfort, cow movement and efficient use of labor. This does not suggest other parlors will not work, but cost and efficiency must always be always considered.

Table 7. Capital investments.

DescriptionQuantityCost/UnitTotal
Land100 acres$3,500$350,000
Dairy cows75 cows$1,100$82,500
Heifers (1 year old)22 heifers4008,800
Buildings and farm setup
Milking parlor, equipment, tank, holding area and office24 stalls$7,000$168,000
Manure storage for parlor and holding area $40,000$40,000
Feed bins (15 tons each)2 bins$7,000$14,000
Hay barn and equipment storage5,000 ft$10$50,000
Lanes5,703 ft$2.00$11,406
Watering system (without well and pump)5,703 ft

$2.00

$11,406

Fencing and paddock setup25,992 ft

$0.90

$23,393

Establishing new forages (fertilizer, seed, tillage)90 acres

$150.00

$13,500

Machinery and equipment
Tractor (100 HP with loader)1$28,500$28,500
Pickup truck1$15,000$15,000
ATV1$5,000$5,000
Clipper mower1$5,000$5,000
Silage feeding equipment1$12,000$12,000
Other farm equipment  $12,500
Total investment  $851,005
Investment per cow  $11,347

Permanent lanes, water lines and paddocks are established in this dairy. Lanes are essential in a pasture-based dairy to move cows easily from pasture to parlor, whether the grazing cell design is fixed or flexible. Constructing raised lanes with adequate drainage capacity and using crushed rock, lime screenings or other stabilizing material reduces annual maintenance needs and keeps cows cleaner and healthier. Electrified 12.5-gauge high-tensile wire is used for perimeter fence and permanent paddock fencing in this dairy system. Water systems include buried water lines and permanently installed stock tanks.

Initial expenses of forage establishment are included in the capital investments. These expenses include fertilizer, seed and tillage. Pastures can be seeded either on a prepared seedbed or no-till drilling, depending on site conditions and crop requirements. Machinery investments include a tractor, pickup, ATV, clipper/rotary mower, silage feed wagon and other farm equipment. Other facility investments include equipment storage, hay barn and feed bins.

Financial analysis and statements

The 75-cow model dairy will gross $186,373 per year in milk and young stock sales. This farm will have a net loss of $10,260 after all operating costs, labor and depreciation are deducted (see Tables 8–11 for financial measurements and statements). On a per cow basis, this is a gross operating income of $2,485 per cow and a net loss of $137 per cow, after labor and depreciation are deducted.

The model represents a dairy using 100 percent equity financing with no debt. Although unrealistic, this simplifying assumption helps lenders analyze the free cash flow to determine how much debt the operation will support. Adding net income from operations plus the building and machinery depreciation yields a free cash flow of $21,336 available for principal and interest payments (-$10,260 net loss + $31,596 depreciation). On a per cow basis, this is equivalent to $284 of cash available for principal and interest payments. This free cash flow estimate assumes no additional cash will be used for family living expenses other than what is already used to pay labor in the dairy.

Table 8. Financial measurements.

 Year 1Year 2Year 3Year 4Year 5
Current ratio1.514.674.674.674.67
Return on assets-2.7%-1.9%-0.8%-0.4%-0.6%
Operating expense ratio89.7%86.8%82.9%81.6%82.3%
Depreciation expense ratio23.0%21.7%20.5%20.0%20.0%
Net farm income from operations ratio-12.6%-8.5%-3.4%-1.6%-2.3%

The character of the investments in the dairy reduces a lender’s risk because a high percentage of the initial investment is concentrated in appreciating land and reproducing cattle rather than specialized assets that are harder to liquidate at full value.

Table 9. Dairy enterprise budget for the 75-cow grazing dairy model (5-year average).

 Dollars
per herd
Dollars
per cow
Dollars
per cwt
Percent
INCOME FROM OPERATIONS
Milk sales179,3432,39118.3696.2%
Sales of young stock and calves7,029940.723.8%
Total gross receipts186,3732,48519.08100.0%
OPERATING EXPENSES
Feed
• Feedstuffs67,1668966.8834.2%
• Less feed for heifers-16,500-220-1.69-8.4%
Total feed costs50,6666765.1925.8%
Herd replacement costs
• Depreciation—dairy cows7,5101000.773.8%
• Loss on sale of cows3,959530.412.0%
Total herd replacement costs11,4691531.175.8%
Hired labor (including benefits)47,0586274.8223.9%
DHIA1 testing1,950260.201.0%
Semen/breeding1,875250.191.0%
Real estate/personal property taxes2,214300.231.1%
Milk marketing213,1881761.356.7%
Repairs7,350980.753.7%
Vet/medicine4,875650.502.5%
Parlor supplies2,732360.281.4%
Utilities3,903520.402.0%
Insurance3,122420.321.6%
Fertilizer5,831780.603.0%
Seed/spray2,592350.271.3%
Custom hire2,082280.211.1%
Truck and fuel2,000270.201.0%
Fence/water2,000270.201.0%
Other expenses1,500200.150.8%
Depreciation31,5964213.2316.1%
Less other expenses for raising heifers-1,371-18-0.14-0.70%
Total operating expenses196,6322,62220.13100.0%
NET INCOME FROM OPERATIONS-10,260-137-1.05 

Notes
1 Dairy Herd Improvement Association
2 Includes milk hauling, Dairy Margin Coverage (DMC) insurance, federal promotion and cooperative fees.

Table 10. Pro forma income statement for the 75-cow grazing dairy model.

 Year 1
(dollars)
Year 2
(dollars)
Year 3
(dollars)
Year 4
(dollars)
Year 5
(dollars)
5-year average
(dollars)
GROSS REVENUE
Milk sales165,553172,671183,102187,695187,695179,343
Calves and heifers sold6,5446,7867,1587,4027,5477,087
Total gross revenue172,097179,457190,259195,097195,242186,431
OPERATING EXPENSES
Feed
• Purchased concentrates46,72245,95746,28746,63546,76446,473
• Purchased hay20,76220,29220,59420,86620,95420,693
• Less feed for heifers-16,725-15,536-16,240-16,892-17,109-16,500
Total feed costs50,75950,71350,64150,60950,60950,666
Herd replacement costs
• Depreciation—dairy cows7,9297,4067,4057,4057,4057,510
• Loss on sale of cows4,3393,8643,8633,8633,8633,959
Total herd replacement costs12,26811,27011,26811,26811,26811,469
Hired labor (includes benefits)45,21346,11747,04047,98048,94047,058
DHIA1 testing1,9501,9501,9501,9501,9501,950
Semen/breeding1,8751,8751,8751,8751,8751,875
Real estate/personal property taxes2,1282,1702,2132,2582,3032,214
Milk marketing212,21312,73813,50813,74113,74113,188
Repairs7,3507,3507,3507,3507,3507,350
Vet/medicine4,8754,8754,8754,8754,8754,875
Parlor supplies2,6252,6782,7312,7862,8412,732
Utilities3,7503,8253,9023,9804,0593,903
Insurance3,0003,0603,1213,1843,2473,122
Fertilizer5,6035,7155,8295,9456,0645,831
Seed/spray2,4902,5402,5912,6422,6952,592
Custom hire2,0002,0402,0812,1222,1652,082
Truck and fuel2,0002,0002,0002,0002,0002,000
Fence/water2,0002,0002,0002,0002,0002,000
Other expenses1,5001,5001,5001,5001,5001,500
Depreciation (buildings and equipment)31,59631,59631,59631,59631,59631,596
Less other expenses for raising heifers-1,356-1,294-1,354-1,406-1,422-1,371
Total operating expenses193,817194,716196,716198,255199,657196,632
NET INCOME (LOSS)-21,720-15,259-6,457-3,158-4,415-10,202

Notes
1 Dairy Herd Improvement Association
2 Includes milk hauling, Dairy Margin Coverage (DMC) insurance, federal promotion and cooperative fees.

Table 11. Pro forma cash flow statement for the 75-cow grazing dairy model.

 Year 1
(dollars)
Year 2
(dollars)
Year 3
(dollars)
Year 4
(dollars)
Year 5
(dollars)
5-year average
(dollars)
CASH INFLOWS
Milk sales165,553172,671183,102187,695187,695179,343
Livestock sales16,85715,86216,23316,47716,62216,410
Total cash inflows182,410188,533199,334204,172204,317195,753
CASH OUTFLOWS
Purchased concentrates46,72245,95746,28746,63546,76446,473
Purchased hay20,76220,29220,59420,86620,95420,693
Hired labor (including benefits)45,21346,11747,04047,98048,94047,058
DHIA1 testing1,9501,9501,9501,9501,9501,950
Semen/breeding1,8751,8751,8751,8751,8751,875
Real estate/ personal property taxes2,1282,1702,2132,2582,3032,214
Milk marketing212,21312,73813,50813,74113,74113,188
Repairs7,3507,3507,3507,3507,3507,350
Vet/medicine4,8754,8754,8754,8754,8754,875
Parlor supplies2,6252,6782,7312,7862,8412,732
Utilities3,7503,8253,9023,9804,0593,903
Insurance3,0003,0603,1213,1843,2473,122
Fertilizer5,6035,7155,8295,9456,0645,831
Seed/spray2,4902,5402,5912,6422,6952,592
Custom hire2,0002,0402,0812,1222,1652,082
Truck and fuel2,0002,0002,0002,0002,0002,000
Fence/water2,0002,0002,0002,0002,0002,000
Other expenses1,5001,5001,5001,5001,5001,500
Total cash outflows168,055168,681171,445173,689175,324171,439
NET CASH FLOW14,35519,85227,88930,48328,99324,314

Notes
1 Dairy Herd Improvement Association
2 Includes milk hauling, Dairy Margin Coverage (DMC) insurance, federal promotion and cooperative fees.

Original authors: Joe Horner, Ryan Milhollin, Stacey Hamilton, Wayne Prewitt and Tony Rickard, University of Missouri.