Cost of production on organic dairies update

Jen Miller of NOFA-VT and grazing consultant Sarah Flack recently discussed their latest research on production costs on Northeast organic dairy farms. The presentation was part of the UVM Extension Northwest Crops & Soils dairy webinar series.

Miller and Flack’s research is part of an ongoing project started by Bob Parsons, a former UVM Extension professor of agricultural economics, who died in 2018. In 2018, Miller and Flack transitioned to the Dairy TRANS method of data collection (developed by Larry Tranel of Iowa State University). “The project is primarily focused on cost of production and other production metrics like labor efficiency and acreage,” Miller said.

Each year, Miller visits and collects data from 25 – 30 organic dairy farms in Vermont with an average herd size of 78 cows. All of the participating farms are wholesale producers. Flack studies about 22 wholesale producers each year; the difference is that these participating farms have an add-on grass-fed certification to their organic certification. The grass-fed herds had an average herd size of 63 cows and included farms in Vermont, New Hampshire, New York and Pennsylvania. The presentation focused on data collected from 2019 and 2020 and gave side-by-side comparisons of the two production systems.

In their studies, cost is calculated per hundredweight equivalent (CWT EQ). This means that they take the total hundredweights sold and add all other dairy related income such as calves, hay and agricultural program payments. Then, this number is divided by the milk price. “This allows us to look at cost of production per actual hundredweight sold and also cost of production with all revenue generated by the dairy enterprise factored in,” Miller said. Interest payments were not included in total cash expenses.

Overall, 2019 and 2020 data showed that the average total cost on organic dairy farms was $459,469 and $252,699 on the grass-fed dairies. The total milk sold per year in CWT EQs were

12,881 on the organic farms and 6,185 on the grass-fed farms. On a per cow basis, the organic farms averaged 15,474 lbs./lactation and 8,562 lbs./lactation on the grass-fed farms. The total cost per CWT EQ on organic dairies was $37.26 and $44.55 on the grass-fed dairies.

Balance sheet adjustments were factored into achieving the total cost, as was a 4% equity charge – 4% of the fair market value of all assets. Another cost factored into the total cost was unpaid labor cost – the opportunity cost of unpaid labor and management. For the purpose of this study, unpaid labor is valued at $40,000 per full-time equivalent (FTE) with one FTE equaling 3,000 hours of labor a year.

“There’s higher total expenses on average for the organic farms, but because they’re producing more milk in total and more CWT EQs their higher expenses are able to get divided out over more hundredweights, so their cost of production is lower,” Miller said.

Looking at the top five cash expenses as a percentage of total expenses, purchased feed was at the top for both production systems (41% for the organic farms and 15.2% for the grass-fed). Hired labor, supplies and repairs were the next highest expenses, though in different orders. “Where we start to see the difference is that for the organic producers custom hire is one of the expenses that lands in the top five cash expenses at 5%. Custom hire doesn’t appear in the top five for the grass-fed. Instead, it’s the rental of land that shows up,” said Flack.

On average, the feed costs as a percent of overall cash expenses were much lower overall for the grass-fed farms than the organic farms. Out of the 15.2% feed costs, on average 2.2% of that is spent on molasses and another 2.2% on minerals. Mineral costs tend to be higher because grass-fed farms can’t use grain as a carrier for their mineral programs.

Miller and Flack also assessed the data to learn more about what management practices correlated with either higher or lower costs of production. They observed that the farms that were feeding molasses regularly had a significantly higher cost of production but were not selling more milk than the farms not feeding it.

Miller pointed out that a limitation of their data was that they only measured milk sold, not milk produced. According to Miller, the molasses may actually have boosted milk production, but the milk could have been feeding calves or being used elsewhere. Flack added, “Every time I look at the research, I feel less and less clear about molasses and feel like we need more research to clarify when it is really useful in the ration.”

Flack and Miller also gleaned that farms buying in a significant amount of their forages had a lower cost of production than the farms that were making all of their own forages. The farms who were buying in their forages spent less on supplies, fuel and repairs. On the organic farms, farms in the lowest cost of production group had the highest custom hire expenses per CWT EQ. Spreading, chopping and hoof trimming were the most common custom hire expenses.

The final comparisons Flack and Miller discussed were related to labor efficiency. The average number of cows per FTE was similar in both systems. One metric Flack likes to look at is the milk sold per FTE in CWT EQs. For the organic farms, the average was 4,407 CWE EQs and for grass-fed it was 2,770 CWE EQs.

Flack and Miller are currently collating data from 2021.

by Sonja Heyck-Merlin

Leave A Comment