A look at the rise of the dairy industry in South Dakota.
By: Alvaro Garcia, SDSU Extension Agriculture & Natural Resources Program Director
Dairy development in South Dakota was discussed during a recent meeting. The advantages offered by the state were highlighted. Among them were cited a climate suitable for dairy cows, ample supply of feedstuffs, and a strong milk-processing industry.
Small dairy farms in the state, are still a highly significant number at 181 out of the total 244 farms. For these smaller units it is less costly and faster to increase or diversify their agricultural production than to expand or build a new dairy barn and raise or purchase the animals needed. This approach makes economic sense for smaller dairies. A further dairy expansion in a relatively short period of time will have to come then from: a. existent large (1,000 milking cows plus) dairies, b. relocation of farms from other states, or c. foreign investors coming into the state.
A few years ago producers from overseas capitalized on the favorable difference between the Euro over the Dollar, turning their foreign assets into more acres and cows in South Dakota. A shift in this relationship and the elimination of the milk quota in the EU has now eliminated these advantages. Extremely dry conditions in the western states has made water a highly prized commodity in that region fueling the interest to relocate of dairies in those states.
At the current local input-output prices the real threat to dairy expansion in South Dakota is not feed or milk prices. There are 63 large dairies in the state producing 65% of the milk or 1.4 million pounds yearly. If cows on these dairies produce on average 26,000 pounds (85 pounds per day) that’s 54,000 cows. In these large dairies, one employee can usually handle 100 cows. However, since hired labor is also assigned to other tasks it can be estimated that each dairy has one employee per 80 cows. The total employees hired in the state by the large dairies are thus close to 700. An expansion of 100,000 cows in the state would require roughly 1,400 additional employees.
With this labor situation it would be tempting to think about milking robots as an alternative. If the 60-cow robots in the market today were to be used, a 1000-cow dairy would need 17 robots which, at $210,000 each makes for a $3.6 million dollars investment. Investing that kind of money into a new milking system seems akin to what happened in the past when dairy farmers invested in a new “state of the art” milking parlor difficult to pay for with production. With the extreme input-output variability that the dairy industry has been facing since the 1980’s incorporating nowadays any kind of expensive equipment is a high-risk endeavor. Any expansion effort should first target maximizing production with the current herd size and facilities. The expansion thought process needs to follow a sequence of events with economic logic that can be summarized in one statement “getting better before getting larger”.
- More milk from existing cows (all existing cows producing up to their genetic potential).
- More milk from more cows (every stall occupied with high producing, profitable cows)
- In current facilities (all stalls occupied with cows of superior production).
- In new facility with the same milking system.
- In new facility with new milking system.
Improving milk volume per cow should be the first step in any expansion process, before even considering the possibility of adding more stalls. If the current cows cannot be milked to their genetic potential, why would adding cows improve the situation? Considering adding more cows should only occur after the herd’s genetic potential has limited production. The same reasoning applies to adding a new milking parlor; unless the current milking system is outdated, one should only consider a new milking parlor when the current parlor’s use (in hours per day) has been maximized. Adding a new parlor once the current parlor’s use has been maximized allows the costs of the parlor to be distributed over a larger number of animals; thus the costs decrease on a per-head basis.