Starting a 600-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 600-cow intensive rotational grazing dairy in Missouri. Data presented here reflect costs and conditions as of October 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. 

Farm description

View down the lane of an empty swing parabone dairy parlor.Figure 1. Swing parabone dairy parlors are designed to promote production and capital efficiency by emphasizing rapid cow movement, efficient use of labor and low investment per cow.

In this model dairy, the farm is a carefully selected 660-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 dairy farm is purchased for $3,500 per acre. An additional 120-acre heifer farm is purchased for $3,000 per acre.

  • 600 acres for paddocks at the grazing dairy
    • 1 cow per acre for 600 cows
  • 60 acres for farmstead and facilities
  • Permanent lanes, water lines and paddocks are established at each farm
  • No irrigation or winter housing is planned
  • Both farms are replanted with improved pasture species

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.

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. Bull calves will be sold for an average of $120 each, reflecting a weighted average value of bull calves from dairy sires and bull calves from crossbreeding to beef sires.

Table 1. Herd turnover and mortality rates.

DescriptionYear 1Year 2Year 3Year 4Year 5
Target herd size (head)600600600600600
Annual cull rate, excluding deaths (%)2522222222
Annual death loss (%)44444
Calving interval (months)14.013.512.812.512.5

Table 2 shows milk production estimates by year. 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. Eight pounds of concentrate costing $280/ton delivered is fed to each cow in the parlor for the milking group. Five pounds of purchased hay costing $0.10/lb 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$1.12
Purchased hay$0.50
Total feed cost$1.62

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 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 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 ($0.75/cwt).

Labor management

A grazing dairy that milks two times daily will ideally spend no more than 2.5 hours in the parlor per milking. Outsourcing of forage harvest is used to keep labor cost low. A general manager is employed at $75,000 per year. Three employees are hired at $15.50, $16.50 and $17.50 per hour, respectively. Benefit costs include employer’s share of Social Security and Medicare taxes, workers compensation insurance and paid vacation. Table 6 presents a labor summary. A 2 percent inflation rate is built into labor and select operating expenses.

Table 6. Labor summary.

DescriptionYear 1Year 2Year 3Year 4Year 5
Full-time equivalents (FTEs) (from labor hours)5.05.05.05.05.0
Pounds milk per FTE1,447,4571,509,6901,600,8891,628,5931,628,593
Annual benefits27,34327,89028,44829,01729,597
Total hourly labor111,644113,877116,154118,478120,847
Total salaried labor75,00076,50078,03079,59181,182
Total labor cost213,987218,267222,632227,085231,627

Capital investments

Capital investments for this start-up operation are listed in Table 7. These investments include land, buildings, machinery, equipment and livestock. The total capital invested in the dairy will be $4,670,081 ($7,783 per cow). This includes all the minimum components necessary to make the dairy operational.

Table 7. Capital investments.

DescriptionQuantityCost/UnitTotal (dollars)
Land for dairy farm660 acres$3,500$2,310,000
Land for heifer farm120 acres$3,000$360,000
Dairy cows600 cows$1,100$660,000
Heifers (1 year old)174 heifers$400$69,600
Buildings and farm setup
Milking parlor, equipment, tank, holding area and office80 stalls$7,000$560,000
Manure storage  $80,000
Feed bins (15 tons each)4 bins$7,000$28,000
Hay barn and equipment storage9,600 ft$10$96,000
Lanes26,400 ft$2.00$52,800
Watering system (without well and pump)26,400 ft$2.00$52,800
Water supply well and pump  $20,000
Fencing and paddock setup58,757 ft$0.90$52,881
Establishing new forages (fertilizer, seed, tillage)720 acres$150.00$108,000
Machinery and equipment
Tractor (used 130 HP with loader)1$100,000$100,000
Tractor (used 60-70 HP with loader)1$25,000$25,000
Pickup truck, used1$25,000$25,000
ATV3$5,000$15,000
Clipper mower1$15,000$15,000
Silage feeding equipment1$20,000$20,000
Other farm equipment  $20,000
Total investment  $4,670,081
Investment per cow  $7,783

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 sites 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-40 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 considered.

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 tractors, pickup, ATVs, 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 600-cow model dairy will gross $1,490,981 per year in milk and young stock sales. This farm will have a net income of $328,371 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 operating income of $547 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 $419,112 available for principal and interest payments ($328,371 net income + $90,741 depreciation). On a per cow basis, this is equivalent to $678 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 assets5.1%6.2%7.5%8.3%8.2%
Operating expense ratio72.1%69.7%66.6%65.5%66.0%
Depreciation expense ratio11.2%10.4%9.9%9.6%9.6%
Net farm income from operations ratio16.7%19.9%23.6%24.9%24.4%

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 600-cow grazing dairy model (5-year average).

 Dollars per herdDollars per cowDollars per cwtPercent
INCOME FROM OPERATIONS
Milk sales1,434,7462,39118.3696.2%
Sales of young stock and calves56,235940.723.8%
Total gross receipts1,490,9812,48519.08100.0%
OPERATING EXPENSES
Feed    
Feedstuffs485,8888106.2241.8%
Less feed for heifers-131,826-220-1.69-11.3%
Total feed costs354,0625904.5330.5%
Herd replacement costs 
Depreciation—dairy cows60,0801000.775.2%
Loss on sale of cows31,667530.412.7%
Total herd replacement costs91,7471531.177.9%
Hired labor (including benefits)222,7203712.8519.2%
DHIA1 testing7,200120.090.6%
Semen/breeding10,200170.130.9%
Real estate / personal property taxes12,152200.161.0%
Milk marketing297,6901631.258.4%
Repairs58,800980.755.1%
Vet/medicine36,000600.463.1%
Parlor supplies21,857360.281.9%
Utilities28,102470.362.4%
Insurance24,979420.322.1%
Fertilizer46,368770.594.0%
Seed/spray20,608340.261.8%
Custom hire16,653280.211.4%
Truck and fuel10,000170.130.9%
Fence/water10,000170.130.9%
Other expenses12,000200.151.0%
Depreciation90,7411511.167.8%
Less other expenses for raising heifers-9,268-15-0.12-0.80%
Total operating expenses1,162,6101,93814.88100.0%
NET INCOME FROM OPERATIONS328,3715474.20 

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 600-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 sales1,324,4231,381,3661,464,8131,501,5631,501,5631,434,746
Calves and heifers sold52,35354,29257,26159,79560,37556,815
Total gross revenue1,376,7761,435,6581,522,0741,561,3581,561,9381,491,561
OPERATING EXPENSES 
Feed      
Purchased concentrates321,289316,041319,216322,243323,276320,413
Purchased hay165,737162,332164,749166,927167,630165,475
Less feed for heifers-132,914-124,287-129,916-135,139-136,875-131,826
Total feed costs354,111354,087354,049354,031354,031354,062
Herd replacement costs 
Depreciation—dairy cows63,42959,24359,24359,24359,24360,080
Loss on sale of cows34,71430,90630,90530,90530,90531,667
Total herd replacement costs98,14390,14990,14890,14890,14891,747
Hired labor (includes benefits)213,987218,267222,632227,085231,627222,720
DHIA1 testing7,2007,2007,2007,2007,2007,200
Semen/breeding10,20010,20010,20010,20010,20010,200
Real estate / personal property taxes11,67511,90912,14712,39012,63812,152
Milk marketing290,46694,356100,056101,787101,78797,690
Repairs58,80058,80058,80058,80058,80058,800
Vet/medicine36,00036,00036,00036,00036,00036,000
Parlor supplies21,00021,42021,84822,28522,73121,857
Utilities27,00027,54028,09128,65329,22628,102
Insurance24,00024,48024,97025,46925,97824,979
Fertilizer44,55045,44146,35047,27748,22246,368
Seed/spray19,80020,19620,60021,01221,43220,608
Custom hire16,00016,32016,64616,97917,31916,653
Truck and fuel10,00010,00010,00010,00010,00010,000
Fence/water10,00010,00010,00010,00010,00010,000
Other expenses12,00012,00012,00012,00012,00012,000
Depreciation (buildings and equipment)90,74190,74190,74190,74190,74190,741
Less other expenses for raising heifers-9,262-8,762-9,168-9,519-9,627-9,268
Total operating expenses1,146,4111,150,3431,163,3091,172,5371,180,4521,162,610
NET INCOME (LOSS)230,365285,315358,766388,821381,486328,951
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 600-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 sales1,324,4231,381,3661,464,8131,501,5631,501,5631,434,746
Livestock sales134,853126,892129,861132,395132,975131,395
Total cash inflows 1,459,2761,508,2591,594,6741,633,9581,634,5381,566,141
CASH OUTFLOWS
Purchased concentrates321,289316,041319,216322,243323,276320,413
Purchased hay165,737162,332164,749166,927167,630165,475
Hired labor (including benefits)213,987218,267222,632227,085231,627222,720
DHIA1 testing7,2007,2007,2007,2007,2007,200
Semen/breeding10,20010,20010,20010,20010,20010,200
Real estate / personal property taxes11,67511,90912,14712,39012,63812,152
Milk marketing290,46694,356100,056101,787101,78797,690
Repairs58,80058,80058,80058,80058,80058,800
Vet/medicine36,00036,00036,00036,00036,00036,000
Parlor supplies21,00021,42021,84822,28522,73121,857
Utilities27,00027,54028,09128,65329,22628,102
Insurance24,00024,48024,97025,46925,97824,979
Fertilizer44,55045,44146,35047,27748,22246,368
Seed/spray19,80020,19620,60021,01221,43220,608
Custom hire16,00016,32016,64616,97917,31916,653
Truck and fuel10,00010,00010,00010,00010,00010,000
Fence/water10,00010,00010,00010,00010,00010,000
Other expenses12,00012,00012,00012,00012,00012,000
Total cash outflows1,099,7051,102,5041,121,5051,136,3071,146,0671,121,217
NET CASH FLOW359,572405,755473,170497,651488,472444,924
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.