In today’s challenging economic landscape, dairy producers are facing the squeeze of tight margins, pushing them to explore various ways to diversify and secure their operations. With milk revenue not as robust as it used to be, it’s imperative to expand income lines to ensure long-term sustainability. Kevin Dhuyvetter, an agricultural economist and dairy technical consultant with Elanco, offers insights on how dairy producers can effectively diversify while managing core business operations.
Diversification: Strategic Choices and Challenges
For many dairies, large or small, there is a growing trend toward generating income beyond milk sales. Methane digesters, on-farm processing, agritourism and product extensions like ice cream and cheese businesses are just a few of the avenues being embraced. One inspiring example is Ken Smith from Virginia, who creatively transformed an old truck stop property into the successful Moo-Thru ice-cream venture in 2006.
“We sold 15,000 cones in the first three weeks,” Smith says. “People asked if we’d franchise this, and we’d only been open 60 days.”
Today, Smith, his wife, Pam, and their daughters help operate and manage the ice-cream portion of the family business, while their son, Ben, owns and operates the dairy, Cool Lawn Farm, home to 850 cows.
While diversification offers promising income opportunities, it brings challenges. Dhuyvetter advises producers to examine whether new ventures complement or compete with their core milk production business. An ice cream business could boost profitability but might also demand significant time and management, potentially conflicting with dairy operations.
A New Income Option: Beef-on-Dairy Opportunities
One lucrative option for dairy producers is beef-on-dairy operations, which Dhuyvetter highlights as a complement to traditional dairy business. This involves breeding cows to produce beef-cross calves, allowing dairies to tap into the beef market. However, it’s crucial for producers to evaluate their breeding strategy and potential market involvement to avoid competing with milk production needs.
Ben Smith of Cool Lawn in Virginia has gone against the popular beef-on-dairy trend.
“While most of the industry is going the beef-on-dairy route, we’ve focused on selling high-quality sexed Holstein semen,” Ben Smith says, noting this has added dollars to their bottom line.
Calculating the right percentage of cows to breed for beef is vital. Dhuyvetter stresses the importance of understanding your farm’s needs for replacement heifers to ensure enough resources are allocated to core milk production activities. Producers must decide between retaining ownership of the calves or selling them at birth based on which option yields a higher return.
“Should I be breeding cows to beef? For most producers, the answer is yes, but the next two questions are the ones you need to think about,” he says. “What percent of my cows should I breed to beef? What do I do with the beef-cross calves produced?”
Sustainability and Carbon Market Ventures
Beyond production diversification, producers can embrace sustainability projects like methane digesters or carbon markets. These ventures are not universally accessible, primarily due to their significant capital requirements, but they offer promising revenue potentials.
Dhuyvetter advises careful consideration of economic reversibility before investing in such technologies, ensuring decisions support long-term financial goals. Elanco, for instance, provides opportunities for monetizing emissions reductions via carbon marketplaces using products like Bovaer and Rumensin.
For Smith, sustainability has always been a focus, and since 2023, the farm has leveraged several opportunities to enhance their practices. Manure injection, backed by private sector studies on carbon capture, has been a notable success.
“We had done very little, mainly because we didn’t have the equipment,” he says, adding that Northern Virginia doesn’t have a surplus of custom applicators, so it didn’t make a lot of sense prior to 2023 for them to do this. “Now, our neighbors are happier. We’re happier. We’re getting the full value of that nitrogen, and not to mention, we’re getting an incentive to do this practice.”
Navigating the Future of Dairy Revenue
For dairy producers, diversification and innovation are more than contemporary trends; they are longstanding methods of enhancing resilience and profitability. By analyzing new revenue streams for complementarity with existing operations, understanding the economic implications and considering reversibility options, dairies can strategically enhance their income.
“One hundred years ago, you had a bull calf, and you probably didn’t sell it. You probably fed it to your family, which is diversification by a different path,” Dhuyvetter says. “And we went through some tough years in the late ‘80s and into the ‘90s, and we always talked about having alternative revenue resources to survive in farming. Carbon monetization is another step on that path.”
Ultimately, dairy producers are tasked with navigating a complicated financial landscape and deciding which alternative revenue paths best suit their operations. These efforts ensure an additional cash flow vital to sustaining their farms for years to come, striking a delicate balance between tradition and innovation.
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