Starting a 300-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 300-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.

Farm description

Crossbred dairy cows are specified in this grazing dairy system.Figure 1. 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.

In this model dairy, the farm is a carefully selected 400-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.

  • 360 acres for paddocks
    • 1 cow per acre for 300 cows
    • 60 acres for raising heifers
  • 40 acres for farmstead and facilities
  • Permanent lanes, water lines and paddocks are established
  • No irrigation or winter housing is planned
  • The farm is 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. All bull calves will be sold for $120 each, reflecting a price of mixed crossbred bull calves from dairy and beef sires.

Table 1. Herd turnover and mortality rates.

DescriptionYear 1Year 2Year 3Year 4Year 5
Target herd size (head)300300300300300
Annual cull rate, excluding deaths (%)2522222222
Annual death loss (%)44444
Calving interval (months)14.013.512.812.512.5

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 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 ($0.85/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 general manager will be employed at a salary of $55,000 per year, and two employees working 40 hours per week will be paid $15.50 per hour. Benefits cost for labor include only the employer’s share of Social Security and Medicare taxes. 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)3.53.53.53.53.5
Pounds milk per FTE1,033,8981,078,3501,143,4921,163,2811,163,281
Annual benefits$9,140$9,323$9,509$9,700$9,894
Total hourly labor$64,480$65,770$67,085$68,427$69,795
Total salaried labor$55,000$56,100$57,222$58,366$59,534
Total labor cost$128,620$131,193$133,816$136,493$139,223

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 $2,647,160 ($8,824 per cow). This includes all the minimum components necessary to make the dairy operational.

Table 7. Capital investments.

DescriptionQuantityCost/UnitTotal (dollars)
Land400 acres3,5001,400,000
Dairy cows300 cows1,100330,000
Heifers (1 year old)87 heifers40034,800
Buildings and farm setup
Milking parlor, equipment, tank, holding area and office48 stalls7,000336,000
Manure storage  60,000
Feed bins (15 tons each)2 bins7,00014,000
Hay barn and equipment storage9,600 ft1096,000
Lanes15,840 ft2.0031,680
Watering system (without well and pump)15,840 ft2.0031,680
Water supply well and pump  18,500
Fencing and paddock setup45,000 ft0.9040,500
Establishing new forages (fertilizer, seed, tillage)360 acres150.0054,000
Machinery and equipment
Tractor (used 130 HP)190,00090,000
Tractor (used 60-70 HP with loader)125,00025,000
Pickup truck125,00025,000
ATV15,0005,000
Clipper mower115,00015,000
Silage feeding equipment120,00020,000
Other farm equipment  20,000
Total investment 2,647,160
Investment per cow 8,824

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-24 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.

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, 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 300-cow model dairy will gross $745,490 per year in milk and young stock sales. This farm will have a net income of $74,474 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 $248 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 $142,824 available for principal and interest payments ($74,474 net income + $68,350 depreciation). On a per cow basis, this is equivalent to $476 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 assets1.0%2.1%3.4%4.0%4.0%
Operating expense ratio81.6%78.9%75.3%74.1%74.6%
Depreciation expense ratio14.5%13.6%12.9%12.5%12.5%
Net farm income from operations ratio3.8%7.4%11.8%13.4%12.8%

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

 Dollars per herdDollars per cowDollars per cwtPercent
INCOME FROM OPERATIONS
Milk sales717,3732,39118.3696.2%
Sales of young stock and calves28,118940.723.8%
Total gross receipts745,4902,48519.08100.0%
OPERATING EXPENSES
Feed    
Feedstuffs268,5778956.8740.1%
Less feed for heifers-65,913-220-1.69-9.8%
Total feed costs202,6646765.1930.3%
Herd replacement costs 
Depreciation—dairy cows30,0401000.774.5%
Loss on sale of cows15,833530.412.4%
Total herd replacement costs45,8741531.176.9%
Hired labor (including benefits)133,8694463.4320.0%
DHIA1 testing7,800260.201.2%
Semen/breeding7,500250.191.1%
Real estate/personal property taxes5,939200.150.9%
Milk marketing252,7531761.357.9%
Repairs29,400980.754.4%
Vet/medicine19,500650.502.9%
Parlor supplies10,928360.281.6%
Utilities15,612520.402.3%
Insurance12,490420.321.9%
Fertilizer23,184770.593.5%
Seed/spray10,304340.261.5%
Custom hire8,326280.211.2%
Truck and fuel8,000270.201.2%
Fence/water8,000270.201.2%
Other expenses6,000200.150.9%
Depreciation68,3502281.7510.2%
Less other expenses for raising heifers-5,476-18-0.14-0.82%
Total operating expenses671,0162,23717.17100.0%
NET INCOME FROM OPERATIONS74,4742481.91 

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 300-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 sales662,212690,683732,407750,781750,781717,373
Calves and heifers sold26,17627,14628,63029,89830,18828,408
Total gross revenue688,388717,829761,037780,679780,969745,780
OPERATING EXPENSES
Feed      
Purchased concentrates186,625183,827185,149186,540187,057185,840
Purchased hay82,86881,16682,37483,46383,81582,737
Less feed for heifers-66,457-62,143-64,958-67,570-68,438-65,913
Total feed costs203,036202,850202,566202,434202,434202,664
Herd replacement costs 
Depreciation—dairy cows31,71529,62229,62129,62129,62130,040
Loss on sale of cows17,35715,45315,45215,45215,45215,833
Total herd replacement costs49,07245,07545,07445,07445,07445,874
Hired labor (includes benefits)128,620131,193133,816136,493139,223133,869
DHIA1 testing7,8007,8007,8007,8007,8007,800
Semen/breeding7,5007,5007,5007,5007,5007,500
Real estate/personal property taxes5,7065,8205,9366,0556,1765,939
Milk marketing248,85250,95254,03054,96554,96552,753
Repairs29,40029,40029,40029,40029,40029,400
Vet/medicine19,50019,50019,50019,50019,50019,500
Parlor supplies10,50010,71010,92411,14311,36610,928
Utilities15,00015,30015,60615,91816,23615,612
Insurance12,00012,24012,48512,73412,98912,490
Fertilizer22,27522,72123,17523,63824,11123,184
Seed/spray9,90010,09810,30010,50610,71610,304
Custom hire8,0008,1608,3238,4908,6598,326
Truck and fuel8,0008,0008,0008,0008,0008,000
Fence/water8,0008,0008,0008,0008,0008,000
Other expenses6,0006,0006,0006,0006,0006,000
Depreciation (buildings and equipment)68,35068,35068,35068,35068,35068,350
Less other expenses for raising heifers-5,473-5,177-5,418-5,625-5,689-5,476
Total operating expenses662,037664,491671,368676,375680,811671,016
NET INCOME (LOSS)26,35153,33889,669104,304100,15874,764

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 300-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 sales662,212690,683732,407750,781750,781717,373
Livestock sales67,42663,44664,93066,19866,48865,698
Total cash inflows 729,638754,130797,337816,979817,269783,071
CASH OUTFLOWS 
Purchased concentrates186,625183,827185,149186,540187,057185,840
Purchased hay82,86881,16682,37483,46383,81582,737
Hired labor (including benefits)128,620131,193133,816136,493139,223133,869
DHIA1 testing7,8007,8007,8007,8007,8007,800
Semen/breeding7,5007,5007,5007,5007,5007,500
Real estate/ personal property taxes5,7065,8205,9366,0556,1765,939
Milk marketing248,85250,95254,03054,96554,96552,753
Repairs29,40029,40029,40029,40029,40029,400
Vet/medicine19,50019,50019,50019,50019,50019,500
Parlor supplies10,50010,71010,92411,14311,36610,928
Utilities15,00015,30015,60615,91816,23615,612
Insurance12,00012,24012,48512,73412,98912,490
Fertilizer22,27522,72123,17523,63824,11123,184
Seed/spray9,90010,09810,30010,50610,71610,304
Custom hire8,0008,1608,3238,4908,6598,326
Truck and fuel8,0008,0008,0008,0008,0008,000
Fence/water8,0008,0008,0008,0008,0008,000
Other expenses6,0006,0006,0006,0006,0006,000
Total cash outflows 616,546618,389628,320636,146641,514628,183
NET CASH FLOW113,092135,741169,017180,833175,756154,888

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