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Dairy margin coverage program.
The 2018 Farm Bill authorized the new Dairy Margin Coverage (DMC) program, which is a voluntary risk management program for dairy producers. DMC replaces the Margin Protection Program for Dairy (MPP-Dairy).
DMC continues to offer protection to dairy producers when the difference between the all milk price and the average feed price (the margin) falls below a certain dollar amount selected by the producer. The program provides:
- catastrophic coverage, at no cost to the producer, other than an annual $100 administrative fee that is waived in some cases; and
- various levels of buy-up coverage.
Dairy Margin Protection Program
The Dairy Margin Protection Program replaces MILC and will be effective not later than September 1, 2014, through December 31, 2018. The margin protection program offers dairy producers: (1) catastrophic coverage, at no cost to the producer, other than an annual $100 administrative fee; and (2) various levels of buy-up coverage. Catastrophic coverage provides payments to participating producers when the national dairy production margin is less than $4.00 per hundredweight (cwt). The national dairy production margin is the difference between the all-milk price and average feed costs. Producers may purchase buy-up coverage that provides payments when margins are between $4.00 and $8.00 per cwt. To participate in buy-up coverage, a producer must pay a premium that varies with the level of protection the producer elects.
In addition, the 2014 Act creates the Dairy Product Donation Program. This program is triggered in times of low operating margins for dairy producers, and requires USDA to purchase dairy products for donation to food banks and other feeding programs.
Milk Income Loss Contract Program
The 2014 Act extends the Milk Income Loss Contract Program (MILC) from October 1, 2013, through the earlier of the date on which the Secretary certifies that the Dairy Margin Protection Program is operational or September 1, 2014. Dairy producers who were enrolled in 2013 do not need to re-apply. MILC payments are issued when the Boston Class I milk price falls below $16.94 per hundredweight (cwt), as adjusted by a dairy feed ration formula.
Dairy Indemnity Payment Program
The program provides payments to dairy producers when a public regulatory agency directs them to remove their raw milk from the commercial market because it has been contaminated by pesticides and other residues. For more information, see the Frequently Asked Questions (FAQs) below or contact your local service center .
Extension Service Dairy FAQs (.PDF, 35 KB)
8 Things You Need to Know Before Starting Your Own Dairy Farm
Develop a Business Plan and SWOT Analysis
It is important to remember that a dairy farm is a business. Development of detailed business plan and a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) of your plan and the resources you have available will be critical to the success of your business. How many cows will you milk? Where will you market your milk? Will you hire employees? How much money do you need to live on after the dairy bills are all paid? Your business plan should include a cash flow plan that will help you set reasonable expectations for your expenses and cost of production.
Consult the Experts
Even if you grew up on a dairy and learned how to feed and milk cows from your parents and grandparents it is important to consult experts in the dairy industry as you develop your business plan and design your management system. Other dairy producers are great resources. Attend field days and open houses on dairy farms in your area and other parts of the state or country. When visiting other farms find out what has worked well on those farms and what has not worked, but keep in mind that just because something worked on one farm does not mean it will work for you on your farm. In addition to farmers, talk to veterinarians, nutritionists, agronomists, bankers, extension educators, and others that can provide different perspectives on management of your dairy.
Create a Cropping and Feeding Program
Whether you are going to feed a TMR (total mixed ration), graze your cattle, or some combination of both; dairy cattle require a certain set of nutrients to support themselves, produce milk, and grow a calf. Work with a nutritionist to develop rations for your lactating cows and dry cows and heifers if these animals are to be raised on the farm. Many dairy farms in Pennsylvania produce most if not all their own forages and many of their concentrate (grain) needs. Raising all your own feed takes land and time, not to mention equipment for planting and harvesting the crops. Hiring custom operators to plant and harvest crops, or making arrangements with neighbors to share equipment and labor can reduce your capital investment as you get started with your dairy business and are building capital. Double cropping systems, with small grain crops following corn silage, are used successfully on many Pennsylvania farms.
Create a Waste Management Plan
Dairy cattle produce a lot of manure. While this manure is often referred to as waste, if managed and used properly it can be a great resource on the farm. Manure management will be tied closely to your cropping and feeding program. If you are able to use a double cropping system on your farm it will not only allow you to produce more feed but will also allow you to apply more manure to your land. Alternatives to direct land application of manure include composting and anaerobic digestion of manure, while these options may provide additional revenue and other benefits to your dairy they will also increase the capital investment required to get your dairy started. Every farm will need a manure management plan, but depending on the size of your farm a nutrient management plan may also be required. Check with your county Conservation District or local Extension office for more information.
Build Your Equity Over Time
Dairy farming requires a large capital investment. Land, buildings, equipment, and cows are expensive and few new dairy farmers will have the capital required to purchase everything when they get started in business. Many beginning farmers begin by purchasing their cows first and renting the farm and land. These initial animals are your farms equity.
Dairy Farming is a Biological System
The dairy farm is dependent on the cow's ability to live a healthy life, produce milk, and have calves that can become the next generation of the farm. Dairy farming requires detailed programs for herd health, reproduction and calf care in addition to the nutrition and financial aspects on the farm. Working with your veterinarian, genetics representatives and extension agents can help you develop comprehensive farm plans to create a positive future.
One Size Does Not Fit All
All dairy farms are different based on the producer's wishes, resource requirements, market needs and more. Multiple systems exist and can be profitable. Some producers contract out their replacements to a custom heifer raiser while others diversify by selling crops, raising steers or creating a home-bottling plant. How you farm will depend on your desires, resources, and drive.
You are a Manager First
All these previous items are just pieces of the puzzle. In order to succeed you will need to combine each aspect of management into a whole farm plan. However, you don't need to do it all. Work with trusted consultants to help you build a plan, and stick with your strengths. If you love milking cows but hate planting corn, find someone to work with who does, or contract that work out to a third party. Consider creating a farm management team or profit team that engages your consultants to be active participants in the farm's progress.
You may also be interested in ...
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Evaluating and Conditioning Cull Cattle for Market
Dairy Cropping System Project – Forage Quality and Quantity, Part I
Entering the Dairy Industry - Dairy Rental and Sharemilking Agreements
Milk Replacer Costs and Your Options
Dairy Sense: Keeping the Dairy Right Sized
Dairy Sense: A Strong Forage Foundation Begins with a Good VFA Profile
Dairy Financial Performance: How Did 2021 Compare to Previous Years?
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- Cost of Production
- Business Planning Tools
As a farmer, knowledge is power. You understand your business better than anyone, but to be truly successful and profitable over the long term, it is essential to understand your cost of production.
“Making smart decisions on dairy operations, related to both income and expenses, requires knowing the breakeven cost of production. This provides a valuable metric to monitor when the business’s success is compromised by bottlenecks,” said Virginia Ishler, Penn State Extension Dairy Team. “When changes are implemented, their impact on cost of production can be evaluated and adjusted to ensure the operation is on the right path.”
The Center for Dairy Excellence partners with the Penn State Extension to provide breakeven cost spreadsheets and other resources to guide farmers through the process of determining their cost of production. One of the first steps involves calculating their operation’s breakeven costs and making a realistic assessment to evaluate opportunities for improvement.
While the future looks different for every farm, understanding your cost of production can help you alleviate financial stress and achieve long-term success. Learn more about cost of production .
Over the past 10 years, our dairy operation has gone through a number of changes, expansions and transitions. Through all of these changes and transitions, it has been critical for us, and those working with us, to be able to clearly analyze our cost of production and cash flow. The tools that Penn State Extension have developed for us have allowed us to make critical decisions based on true numbers. These tools are extremely user-friendly and can be navigated quite easily. I cannot imagine a path forward for our farm without having the data so easily accessible and easy to understand.
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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
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.
- 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.
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.
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).
Table 4. Daily dry cow period feed costs (Cost/cow/day).
Table 5. Daily youngstock feed costs (Cost/animal/day).
- 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.
- 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.
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.
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).
Table 10. Pro forma income statement for the 75-cow grazing dairy model.
Table 11. Pro forma cash flow statement for the 75-cow grazing dairy model.
Original authors: Joe Horner, Ryan Milhollin, Stacey Hamilton, Wayne Prewitt and Tony Rickard, University of Missouri.
Revised july 2020, download this publication.
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How to Start a Dairy Farm
How do i start a dairy farm how much does it cost to build a modern dairy farm .
If you’re thinking about starting a dairy farm, the process ahead may be daunting. Your question is how to start a dairy farm? Planning out the significant costs and requirements ahead of time is essential to help you budget and avoid any unpleasant surprises. The cost of building a modern dairy farm will depend on many factors: how large the farm will be, where it’s located, whether you are buying or renting land and equipment, and so on. This article is meant to provide you with some general parameters to understand the major costs involved with starting a dairy farm. As you move forward with planning, you should price out costs locally to create a more detailed and accurate budget.
One of the biggest start-up costs for any dairy farm will be the land. A helpful general rule of thumb is to plan on having one to two acres per cow. If you are going to grow your own feed, you’ll need to be at the higher end of this range. The cost of land is going to vary widely depending on location, but it might be anywhere from $1000-$4000 per acre. To minimize startup costs, you might lease the land instead of buying it.
Of course, to start a dairy farm, you will need the cows themselves. Cows typically cost between $1200 and $1600 per individual. So if, for example, you wanted to start a dairy farm with 100 cows, you would spend between $120,000 and $160,000 on livestock.
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Barns and Milking
You will need at least one barn and milking parlor. Your main barn is likely to cost between $100,000 and $200,000, depending on the size and the equipment you include. You’ll also need to plan on approximately $15,000-$30,000 for fencing. You may also need additional barns, such as a hay barn and calf barn. These will probably cost about another $20,000 each, depending on the size.
No dairy farm is complete without the right farming equipment. Equipment you might need includes a tractor, ATV, mower, feeding equipment, and fan and sprinkler systems. Altogether, this equipment might run between $100,000 and $150,000. You may be able to save upfront costs by renting some of this equipment, although renting can cost you more in the long term.
Other Costs to Start a Dairy Farm
The above sections outline your largest expenses, but they by no means include everything. When budgeting your startup costs, make sure to also budget for feed, veterinarian care, labor, milk storage and distribution, insurance, legal expenses, and marketing.
Guidance for Dairy Farm Development
Starting a new dairy farm is a massive endeavor. Expert guidance can help you to plan efficiently and set yourself up for success. If you are considering consulting, the Israeli Dairy Farm offers expert planning in dairy farm development.
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Overview of Dairy Programs in the Farm Bill
photo credit: AFBF
Going back almost 100 years, the history of the farm bill largely tracks the history of food production in the United States as the legislation evolves to meet the needs of its modern-day constituents – farmers and consumers. Agriculture’s role in providing food security, and in turn national security, to the United States is more important than ever. And now, work on the next farm bill has started during a period of volatility on every front – political, economic, weather and beyond.
Milk production remains an integral piece of agricultural production in the United States, accounting for nearly 10% ($42 billion) of all agricultural receipts in 2021 (not including the beef value of dairy animals). With wild market disruptions and supply chain shortfalls underpinning milk price volatility most of the past five years, understanding the farm bill provisions intended to prevent further dairy farm closures is vital.
Dairy Margin Coverage (DMC)
Title I, known as the “commodity title,” authorizes commodity support programs for 2019-2023, including the Dairy Margin Coverage (DMC) program. DMC exists to provide risk protection to dairy producers when milk prices are low and/or feed costs, on average, are high. Unlike other dairy risk management programs, like Dairy Revenue Protection (DRP) or Livestock Gross Margin Dairy (LGM-Dairy), this program is administered directly through USDA’s Farm Service Agency instead of private crop insurance providers. It is completely voluntary and provides payments when the calculated national margin falls below a producer’s selected coverage trigger. The margin is the difference between the average price of feedstuffs (the price of a mix of high-quality alfalfa hay, corn and soybean meal) and the national all-milk price.
To fully understand the status of DMC today we must dive into its relatively recent but complex history. The DMC program is a result of multiple revisions and improvements to the previous Margin Protection Program (MPP), originally authorized in the 2014 farm bill. Enrollees in MPP paid a $100 annual administration fee for catastrophic coverage whenever the margin fell below $4/cwt for a two-month period. Farmers with catastrophic coverage would then receive payments equal to the difference between the national margin and $4/cwt, applied to 90% of their milk production history. MPP production history was defined as the highest annual quantity of milk marketed during 2011-2013, adjusted annually for a national increase in milk production.
In its preliminary form, MPP enrollees could also purchase buy-up coverage for a premium in 50-cent increments from $4.50/cwt to $8/cwt, which provided coverage for the corresponding margin. Premiums were split into two separate tiers. Tier One included premiums for protection of milk on the first 4 million pounds while Tier Two applied to production over 4 million pounds. Participants can then choose to cover 25% to 90% of their production history. During its 2015 initial offerings, 44% of participants and 62% of the covered production chose the catastrophic option. The percentage of participants selecting the catastrophic option only increased in subsequent years as premiums were set to increase. This resulted in 93% of producers and 98% of milk volume being enrolled at the minimum level by 2017. These participation dynamics lead to minimal payouts in the program -- $10 million in 2016 and only $19,000 in 2017.
With dairy producers frustrated with the program, some minor changes were made in the Bipartisan Budget Act of 2018. This included the increase in Tier 1 coverage to up to 5 million pounds. Margin calculations were also calculated monthly instead of every two months and Tier 1 premiums were reduced. Additional changes were made with the passage of the 2018 farm bill, which replaced MPP with DMC. The following bullets summarize these changes as noted by the Congressional Research Service :
- Catastrophic coverage for both Tier 1 and Tier 2 was set at $4/cwt, but it was made available on 95% of a farm’s production history, compared with 90% under MPP, and remained available for a $100 enrollment fee.
- Farms could elect to cover between 5% and 95% of their milk production history with buy-up premiums, compared with 25% to 90% under MPP.
- Farms could purchase buy-up coverage for margin thresholds ranging from $4/cwt to $9.50/cwt under Tier 1 coverage, compared with a range of $4/cwt to $8/cwt under MPP. Tier 2 premiums applied to coverage exceeding 5 million pounds of covered production history, and still provided coverage for margin thresholds ranging from $4/cwt to $8/cwt.
- Buy-up premiums were restructured under DMC; Tier 1 premiums were reduced from levels in MPP-Dairy, while Tier 2 premiums were reduced at lower margin coverage levels and increased at higher margin coverage levels (Table 1).
- The average national margin continued to be calculated monthly, as it had been calculated under the BBA of 2018.
- Registration fees were waived for certain classes of producers, and refunds of MPP premiums were to be paid retroactively to most enrollees.
- Removed the prohibition on dairy farmers participating in both a margin program and LGM-Dairy insurance program.
In 2020, under the Consolidated Appropriations Act, Supplemental DMC (SDMC) based on 75% of the difference between 2019 marketings and the old base calculation (2011-2013 milk marketings) number was passed into law. The new policy allows operations to opt for higher milk production coverage if changes to herd size were made since the 2011-2013 basis years (within the 5-million-pound limitation). For this expansion of coverage, $580 million has been set aside by USDA. It will apply to the 2021 (retroactively), 2022 and 2023 calendar years. After making any revisions to production history under SDMC, producers were able to apply for 2022 traditional DMC coverage. This means future DMC contracts will include the updated production history figures that account for 2019 marketings. This expansion of coverage is not in place past 2023.
Additionally, the Farm Service Agency adjusted the calculation of alfalfa within the factored average feed costs figure using 100% premium alfalfa hay rather than 50%, in hopes of making future DMC payments more reflective of dairy expenses. This change reduced DMC milk margins by an average of 22 cents/cwt a month, linked to the updated alfalfa price being an average of $15.95/ton higher in the formula for 2021. For example, in October 2021, the DMC margin dropped from $8.77/cwt to $8.54/cwt under the adjustment. This will allow enrolled producers to retroactively recoup payments they would have qualified for under the feed cost formula change – if the difference was large enough to trigger a higher payment level covered under their plan.
Currently, producers are considering what further changes can be made to DMC under the next farm bill to make the program even more reflective of current market conditions without losing its effectiveness. Some are concerned that the 5-million-pound Tier 1 limitation no longer represents the average dairy farm in the United States, while others are hoping for more regular updates to production history reference points. Concern that only feed costs are captured in the margin calculation have also been aired as producers face many other cost increases like those for labor, fuel and equipment. In any case, DMC remains a widely utilized program authorized by the farm bill. Participation trends in DMC since its 2019 debut can be viewed here . In 2021, 74% of all farms with production history were participating in the program, which paid out over $1.1 billion due to diminished margins.
Dairy Forward Pricing Program (DFPP)
The Dairy Forward Pricing Program allows milk handlers to pay producers or cooperatives a negotiated price for producer milk, rather than the federal order minimum blend price for non-fluid classes of milk (Class II, III, IV). It does not allow for forward contracting of fluid milk (Class I), though this is defined rather flexibly. The program is voluntary for dairy farmers, cooperatives and handlers; handlers cannot require producer participation in a forward pricing program in order to accept milk. Regulated handlers must still account to the Federal Milk Marketing Order pool for the classified use value of their milk. Each forward contract made under the program must be submitted to the regional market administration and contain a disclosure to ensure producers understand the program and the method in which they would be paid. Prior to the 2018 farm bill, the DFPP expired on Sept. 30, 2018, meaning new contracts under the program were prohibited. The 2018 bill reauthorized the program to allow handlers to enter into new contracts until Sept. 30, 2023, for milk delivered through 2026.
Dairy Indemnity Payment Program (DIPP)
The Dairy Indemnity Payment Program (DIPP) allows the Secretary of Agriculture to indemnify affected farmers and manufacturers of dairy products who, through no fault of their own, suffer income losses with respect to milk or milk products containing harmful pesticide residues, chemicals, or toxic substances, or that were contaminated by nuclear radiation or fallout. The program was extended under the 2018 farm bill until Sept. 30, 2023.
The 2020 Consolidated Appropriations Act amended the regulations for DIPP to indemnify affected farmers for depopulating and permanently removing cows after discovery of chemical residues affecting the commercial marketing of milk for the applicable farm and likely affecting the marketability of cows for a lengthy duration. This includes elevated levels of perfluoroalkyl and polyfluoroalkyl substances (PFAS) that are of growing concern across the United States. The amendment limits indemnification of milk due to chemical residues to three months to monitor chemical levels – removing the cows from production during that time. The indemnification of cows when the cows are likely not to be marketable for three months or longer is new to DIPP. Bred (young dairy female in gestation) and open (young dairy female not in gestation) heifers that are not marketable due to elevated levels of chemical residues as the result of the same loss are eligible for cow indemnification through DIPP. Affected farmers have the choice to receive 50% of cow indemnification after application approval and the remaining 50% after the cows are depopulated and removed or 100% after the cows are depopulated and removed. Once approved for cow indemnification, the affected farmers will dry off the affected lactating dairy cows to stop further milk production. Affected farmers approved for indemnification of cows who subsequently restock the original farm with new dairy cows and commercially market milk at the original location of contamination are not eligible for DIPP indemnification for any future loss from the same contamination.
DIPP should not be confused with the Livestock Indemnity Program (LIP) since chemical residues are not an eligible cause of loss under LIP.
Milk Donation Reimbursement Program (MDRP)
Under the Milk Donation Reimbursement Program, dairy organizations that participate in federal order pools and incur expenses related to fluid milk product donations may apply and receive partial reimbursement to cover some of those expenses. Specifically, eligible handlers who account to an FMMO pool and donate packaged fluid milk products to eligible nonprofit organizations may claim reimbursements for all or part of the FMMO cost difference between the Class I value and the plant and the lowest classified value for the month. Handlers cannot claim reimbursement for other costs related to donating fluid milk such as processing, bottling and transporting the donated milk. MDRP is meant to encourage handlers to make donations to food assistance programs and reduce food waste.
The 2014 farm bill authorized the Secretary of Agriculture to create a program to reimburse eligible dairy organizations for a portion of the value of fluid milk products they donate. The program was to be administered through the Agricultural Marketing Service (AMS). In response, in 2014, the Dairy Product Donation Program was established but was subsequently repealed and replaced in the 2018 farm bill by MDRP. Congress allotted $9 million for the first year (2019) of the program and $5 million for each of the following years.
(DDP) Dairy Donation Program (DDP)
The Dairy Donation Program was established as required by the Consolidated Appropriations Act of 2021 in response to increased prevalence of dumped milk during the early days of the COVID-19 pandemic. Under the program, eligible dairy organizations that account to an FMMO and incur qualified expenses related to certain dairy product donations may apply for and receive reimbursements for those donations. Qualified expenses are incurred by either purchasing fresh fluid milk products for processing into an eligible product or purchasing bulk dairy commodity product for further processing. Like MDRP, this program is intended to facilitate donations of eligible dairy products and prevent and minimize food waste. It was also meant to help balance the supply chain during pandemic recovery. Congress authorized $400 million until expended for the DDP.
The DDP is an additional dairy donation program that overlays existing USDA dairy donation activities such as the MDRP but differs in that in covers more than just fluid milk donations. To qualify under the program eligible dairy products must:
- Be made primarily from cow's (bovine) milk produced in the United States;
- Be packaged in consumer-sized packaging;
- Meet the applicable standards for dairy products in the Federal Food, Drug, and Cosmetic Act as amended;
- Have a sell-by, best-by, or use-by date no sooner than 12 days from the date the eligible dairy product is delivered to the eligible distributor.
Program provisions specify donated dairy products mut be in consumer-sized packaging. This provision should be interpreted by the eligible partnership as to whatever consumer-sized package format is agreeable to both partners.
Although program funds for DDP and MDRP are statutorily prohibited from being consolidated, the two programs operate as one from a stakeholder standpoint. Dairy organizations making Class I fluid milk product donations—which are covered by both programs—will be reimbursed through MDRP funds at the difference between the Class I and lowest classified price and receive a supplemental reimbursement of the lowest classified price plus the manufacturing and transportation cost reimbursement through DDP funds. Total combined reimbursement will be capped at the Class I price in Dade County, Florida.
Dairy organizations already enrolled in MDRP will automatically be enrolled in DDP and qualify to receive supplementary payments for fluid milk products donated under their currently approved MDRP plans. As of July 2022 there were 30 eligible dairy organizations approved by the USDA. Four are in the Western region, six are in the Central West region, 12 are in the Central East region and eight are in the Eastern region. The map below displays which states are categorized under which region.
Table 2 summarizes the reimbursement value by product for DDP and MDRP between October 2019 and the end of June 2022. During this timeframe, nearly $4 million in reimbursements have been made and over 15 million pounds of product donated. Note this is only a small fraction of the authorized $400 million amount.
USDA clarifies that DDP and MDRP are separate and distinct from the USDA safety net program (Dairy Margin Coverage), indemnity and disaster assistance programs, risk management tools through the public-private partnership of the Federal Crop Insurance Program, or USDA purchases of commodities, which may include dairy products, depending on the market conditions and demand from school lunch or nutrition programs.
Dairy Business Innovation (DBI) Initiatives
The Dairy Business Innovation (DBI) initiatives were authorized under the 2018 farm bill to support dairy businesses in the development, production, marketing and distribution of dairy products. At first, the program awarded grants to three initiatives, one at the University of Tennessee, one at the Vermont Agency of Food & Markets and one at the University of Wisconsin. Each initiative provides technical assistance to dairy businesses and uses at least 50% of the award for subawards to dairy businesses, including makers of niche dairy products, such as specialty cheese, or producers of dairy products derived from the milk of a dairy animal, including cow, sheep, and goat milk. The percentage used by DBI initiatives themselves must specifically focus on one of the following items:
- Diversifying dairy product markets to reduce risk and develop higher value uses for dairy products.
- Promoting business development that diversifies farmer income through processing and marketing innovation.
- Encouraging the use of regional milk production.
Table 3 displays the outlays for DBI initiatives between fiscal years 2019-2021. Note, in November 2021 the Agricultural Marketing Service announced additional funding for a new, fourth initiative at California State University Fresno Foundation.
On March 2, 2022, USDA announced the availability of an additional $80 million for DBI initiatives through the American Rescue Plan to further support processing capacity expansion, on-farm improvements and technical assistance to producers. Additionally, $22.9 million was announced for fiscal year 2022 appropriations to support the same initiatives. Information on the four current DBI initiatives can be found here .
Since the 2018 farm bill, the price for Class I milk, i.e., milk used to produce beverage milk products, has been calculated using the simple average of advanced Class III (cheese) and Class IV (milk powders) skim milk prices plus 74 cents. In years prior, the formula was the higher of advanced Class III and Class IV skim milk prices. The legislative change was made at the request of dairy industry stakeholders and was intended to improve risk management opportunities for beverage milk. COVID-19-induced volatility combined with the 2018 farm bill formula change resulted in hundreds of millions of dollars in Class I pool revenue losses compared to the old formula, renewing industry discussions on optimal Class I pricing methods. This has fueled much recent conversation about whether the pricing change made in the 2018 farm bill has been helpful to dairy farmers. Between July and December 2020, the formula change resulted in $744 million less in the federal order pool, causing widespread negative producer price differentials. USDA provided a buffer to these losses through the Pandemic Market Volatility Assistance Program (PMVAP), which provided $350 million in pandemic assistance payments to dairy farmers who received lower value for their milk (primarily Class I suppliers) due to market abnormalities (widespread de-pooling) caused by the pandemic. More recently, however, the impacts of the formula change have been less noticeable. Between January 2021 and July 2022, the higher-of would have contributed an additional $5 million into the federal order pool compared to the average-of. While that’s not insignificant, it’s incomparable to the $744 million targeted by the PMVAP from 2020. Most recently, the Class III price has drifted apart from the Class IV price once again, which will result in pool losses once class utilization and pool volumes are updated for August and September. Figure 1 displays a comparison of Class I prices between the current formula and the higher-of option (if it was in place) from July 2018 to the present, all else held constant. To estimate the impact on dairy farmer revenue, the difference in the Class I milk price between the current system and higher-of was multiplied by the Class I pool volume across all FMMOs. These calculations are presented in Figure 2.
The 2018 farm bill reauthorized many programs important to dairy farmers’ ability to hedge against risk, address unexpected losses associated with contamination, fight food waste, and access technical and innovative business support. The establishment of and flexibilities provided in the DMC program have proved vital to producers during a period of excess market variability. While most provisions have been well received, others, like the change to Class I milk base price formula, have contributed to angst for some producers. As discussions ramp up for the 2023 farm bill, understanding the history of existing dairy programs and how they’ve performed under unprecedented volatility will allow for more informed recommendations.
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How Much Does It Cost to Start a Dairy Farm Business in 2023?
Do you want to know exactly how much it cost to start a dairy farming business? If YES, here is a detailed cost analysis for starting a dairy farm and raising finance. There are several business opportunities available in the agricultural industry and dairy farming is one of them. One good thing about the agricultural industry is that there is market for all the produce from the industry.
Dairy farm is of course a thriving and profitable business because of the usefulness of beef and milk. People eat beef, drink their milk, and use their fur and skin. With cattle milk, cheese can be made along with other dairy products.
How Much Does It Cost to Start a Dairy Farming Business in 2023?
When starting a dairy farm business, you just have to get your costing cum economic analysis right if your intention of building the business is to generate profit, grow the business and perhaps expand the business and start exporting processed meat and milk within your country and other countries of the world.
When conducting costing and economic analysis for your dairy farm business, you just have to critically examine these key factors; place, product, pricing and promotion. As a matter of fact, you would have to review these key factors at regular intervals while running your dairy farm business. As a dairy farm owner, you just have to have proper grasp of your competitive landscape if indeed you want to United Kingdom and Australia can be said to be almost the same except for few variations. For example, the cost of constructing a cattle ranch/dairy farm with the right fencing are same especially when bench–marked against the US Dollars.
Other factors that may be slightly different in terms of costing when it comes to starting a standard dairy farm business in any of the countries listed above are cost of labor, cost of cattle feed, cost of cattle medication, cost of transportation and logistics, local tax, insurance policies, business incorporation fee, promotion and branding cost, rent/leasing amongst other factors.
Over and above, when it comes to starting a medium scale dairy farm business, you should be prepared to either rent or lease a large farm land (cattle ranch) in a good and easy to access location; this is going to be one of the areas where you are expected to spend the bulk of your start–up capital.
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How Much Does It Cost to Start a Dairy Farming Business in the UK?
How much does it cost to start a dairy farming business in canada, how much does it cost to start a dairy farming business in australia, estimating start–up cost for dairy farm business based on the following factors, can a dairy farm business be bootstrapped on a lean budget right from home, how much does it cost to buy a dairy farming franchise, how much does it cost to start a dairy farming business in the united states.
These are the key expenses you are expected to make when starting a medium scale but standard dairy farm business in the United States of America;
- The cost for the purchase of cattle feed and cattle medication – $65,000.
- The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $60,000.
- Other start-up expenses including stationery ( $500 ), phone and utility (gas, sewer, water and electric) deposits ( $6,500 ).
- The cost for construction of a standard cattle ranch/dairy farm facility with the right fencing – $300,000.
- The cost for leasing a large farm land – $200,000
- The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – $30,400.
- The cost for hiring business consultant (including writing business plan) – $2,500.
- Marketing promotion expenses for the grand opening of the dairy farm in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580 .
- Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
- The total fee for registering the business in the United States of America – $750.
- The amount required for the purchase of the first set of cattle (cows, oxen, bulls, bullocks, steers, heifers and calf) – $150,000.
- The cost for acquiring the required working tools and equipment/machines (milking machine and milk collector, milk storage tank and container, water trough, rake, shovel, spade, wheel barrow, cart et al)– $150,000.
- The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
- The cost of purchase and installation of CCTVs – $5,000.
- The cost for building and hosting a website – $600.
- The cost for opening party – $8,000.
- Miscellaneous – $5,000.
You will need an estimate of one million, two hundred thousand dollars ( $1.2 million ) to successfully set up a medium scale but standard dairy farm business/cattle ranch in the United States of America with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers and calf and mass produce milk for the United States of America market. Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a small scale but standard dairy farm business with the capacity to raise minimal cattle and produce minimal milk at a community level in the United States of America will cost from ten thousand dollars to twenty five thousand Dollars ( $10,000 to $25,000 ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
When it comes to starting a standard and large scale dairy farm business in the United States of America with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers and calf) and the capacity to mass produce milk both for the United States of America market and also to export milk to other nation plus a standard milk processing plant, then you should look towards budgeting well over three million dollars ( $3 million ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
These are the key expenses you are expected to make when starting a medium scale but standard dairy farm business in the united kingdom;
- In the United Kingdom, online applications are usually registered within 24 hours and cost £12 (paid by debit or credit card or PayPal). Postal applications take 8 to 10 days and cost £40 (paid by check made out to ‘Companies House’). There’s a same day service costing £100.
- Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, and Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – £13,300.
- Marketing promotion expenses for the grand opening of the dairy farm in the amount of £3,500 and as well as flyer printing (2,000 flyers at £0.04 per copy) for the total amount of £3,580.
- The cost for hiring business consultant (including writing business plan) – £2,500.
- The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – £28,400.
- The cost for leasing a large farm land – £187,000.
- The cost for the construction of a standard cattle ranch/dairy farm facility with the right fencing – £285,000.
- Other start-up expenses including stationery ( £300 ), phone and utility (gas, sewer, water and electric) deposits ( £1,500 ).
- Operational cost for the first 3 months (salaries of employees, payments of bills et al) – £60,000.
- The cost for the purchase of cattle feed and cattle medication – £57,000.
- The amount required for the purchase of the first set of cattle (cows, oxen, bulls, bullocks, steers, heifers and calf) – £138,000.
- The cost for acquiring the required working tools and equipment/machines (milking machine and milk collector, milk storage tank and container, water trough, rake, shovel, spade, wheel barrow, carts et al)– £148,000.
- The cost for store equipment (cash register, security, ventilation, signage) – £9,500.
- The cost of purchase and installation of CCTVs – £4,500.
- The cost for building and hosting a website – £600.
- The cost for opening party – £6,300.
- Miscellaneous – £8,000.
You will need an estimate of one million Pounds Sterling ( £1 million ) to successfully set up a medium scale but standard dairy farm business/cattle ranch in the United Kingdom with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers and calf, and mass produce milk for the United Kingdom market. Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a small scale but standard dairy farm business with the capacity to raise minimal cattle and produce minimal milk at a community level in the United Kingdom will cost from nine thousand to eighteen thousand five hundred Pounds Sterling ( £9,000 to £18,500 ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
When it comes to starting a standard and large scale dairy farm business in the United Kingdom with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers and calf) and the capacity to mass produce milk both for the United Kingdom market and also to export milk to other nations plus a standard milk processing plant, then you should look towards budgeting well over two million, eight hundred Pounds Sterling ( £1.8 million ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
These are the key expenses you are expected to make when starting a medium scale but standard dairy farm business in Canada;
- For federal incorporation of business in Canada, the cost to incorporate is $200 if filed online through Corporations Canada’s online Filing Centre ( $250 if filed through other means).
- Legal expenses for obtaining licenses and permits (Health department license and business license)and permits (Fire department permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
- Marketing promotion expenses for the grand opening of the dairy farm in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
- The cost for leasing a large farm land – $200,000.
- The cost for acquiring the required working tools and equipment/machines (milking machine and milk collector, milk storage tank and container, water trough, rake, shovel, spade, wheel barrow, carts et al)– $150,000.
You will need an estimate of one million, two hundred thousand dollars ( $1.2 millionCAD ) to successfully set up a medium scale but standard dairy farm business/cattle ranch in Canada with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers and calf and mass produce milk for the Canadian market. Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a small scale but standard dairy farm business with the capacity to raise minimal cattle and produce minimal milk at a community level in Canada will cost from ten thousand dollars to twenty five thousand dollars ( $10,000CAD to $25,000CAD ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
When it comes to starting a standard and large scale dairy farm business in Canada with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers and calf) and the capacity to mass produce milk both for the Canadian market and also to export milk to other nations plus a standard milk processing plant, then you should look towards budgeting well over three million dollars ( $3 millionCAD ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
These are the key expenses you are expected to make when starting a medium scale but standard dairy farm business in Australia;
- In Australia, the fees to register your Business Name with ASIC include: $34 for 1 year. $80 for 3 years.
- Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, and Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
You will need an estimate of one million, two hundred thousand dollars (AUD$1.2 million) to successfully set up a medium scale but standard dairy farm business/cattle ranch in Australia with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers, calf et al and mass produce milk for the Australian market. Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a small scale but standard dairy farm business with the capacity to raise minimal cattle and produce minimal milk at a community level in Australia will cost from ten thousand dollars to twenty five thousand dollars ( AUD$10,000 to AUD$25,000 ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
When it comes to starting a standard and large scale dairy farm business in Australia with the capacity to raise cattle such as; cows, oxen, bulls, bullocks, steers, heifers, calf et al) and the capacity to mass produce milk both for the Australian market and also to export milk to other countries plus a standard milk processing plant, then you should look towards budgeting well over three million dollars ( AUD$3 million ). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a business such as dairy farm comes with its own challenges; it is a business that cannot be started in any location of your choice. As a matter of fact, you will not be allowed to start a dairy farm in a residential estate in the United States of America, Canada, the United Kingdom and Australia. The only location you can be allowed to start a dairy farm business is a farm land designated for dairy farming.
When it comes to starting a standard dairy farm business on a large scale, you would need the services of the following professionals;
- Chief Operating Officer
- General Farm Manager
- Veterinary Doctor (optional because it can be contracted)
- Human Resources and Admin Manager
- Sales and Marketing Executive
- Field Employees
- Security Guard
If you a looking for a small scale business that you can successfully bootstrap on a lean budget right from your home, then you should consider starting a dairy farm business.
This is possible if you have enough space in your compound. The truth is that people that live in rural communities find it pretty easy to either start a dairy farm or a poultry farm or start a small garden or all of the above, at their backyard.
All you have to do is to construct portable cattle ranch with the right fencing, purchase minimal cattle (it could be cow or ox), fairly used milking machine, milk collector, milk container/storage tank, cattle feed and cattle medication. As a matter of fact, you can start a dairy farm with as low as five thousand dollars or even less depending on how small you want the business to be.
The challenge here is that you must be ready to take on more than half of the available roles in the business. You should be able to serve as the general farm manager, milk collector, accountant, security guard, and sales and marketing officer.
From available research conducted, there are no known fully operational dairy farms in the United States of America, United Kingdom, Canada and Australia that are into franchising. Most players in this line of business are adopting strategies that will help them sell their milk and meat beyond the city, state or country where their dairy farm in domiciled to other parts of the world as against selling franchise.
Besides, it is easier to start and run a dairy farm from scratch to profitability without leveraging on a known brand name. People will patronize your milk or cattle or meat based on accessibility and pricing as against relying on a brand name.
For example, average total costs on farms with at least 500 milk cows ... Contract (MILC) program; farmers could receive direct payments in months.
The margin protection program offers dairy producers: (1) catastrophic coverage, at no cost to the producer, other than an annual $100 administrative fee;
Your business plan should include a cash flow plan that will help you set reasonable expectations for your expenses and cost of production.
the machinery needed to operate the farm, it's a huge investment. Let's look at the cost of starting a 100-cow dairy.
Financial Planning Resources · Cost of Production · Business Planning Tools ... both income and expenses, requires knowing the breakeven cost of production.
Capital investments for this start-up operation are listed in Table 7. These investments include land, real estate, machinery, equipment and livestock. The
Of course, to start a dairy farm, you will need the cows themselves. Cows typically cost between $1200 and $1600 per individual. So if, for example, you wanted
Figure 6 displays common dairy farm expenses between 2016 and 2021 in dollars per hundredweight of milk produced. Feed, including purchased feed
Farms could elect to cover between 5% and 95% of their milk production history with buy-up premiums, compared with 25% to 90% under MPP. Farms
Starting a small scale but standard dairy farm business with the capacity to raise minimal cattle and produce minimal milk at a community level in the United