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Extension > Agricultural Business Management News > Profitability of Dairy Farms in Minnesota

Wednesday, April 15, 2015

Profitability of Dairy Farms in Minnesota

A recent analysis of the profitability and viability of dairy farms in Minnesota indicates that total family income on these operations is greater than US median Income.  FinBin data, supported by the Center for Farm Financial Management, was utilized in this analysis. 

The total income included revenue from all portions of the farm (crops, custom labor, other livestock, etc.) and non-farm income (e.g. spouse working off-farm). Regardless of number of cows, the average income for these families was above the U.S. median income (Figure 1). This is a positive thing! Dairy farm families in Minnesota are in a good spot, or at least average, relative to other Americans. It is possible to dairy farm and provide financially for a family.
Figure 1. Family income on MN dairies vs. US median family income: 2006-2013. Does not include 2009. 
Using the same FinBin data, the analysis was taken a step further to look only at the dairy portion of total income. These results were a bit more surprising (Figure 2). It was not until an operation had 150 cows that the operation's dairy income was close to that of U.S. Median income. At 50 cows, the income from a dairy enterprise was quite small, just over $10,000.
Figure 2. Net farm income from MN dairy enterprises vs. US median income: 2006-2013. Does not include 2009


What does this mean? Simply put, if a farm wants to specialize and focus on dairy, on average a herd of 150 cows will generate approximately U.S. median income. With fewer cows, other options for income must be explored. The FinBin data suggest additional income typically comes in the form of crop farming, other livestock enterprises, a spouse working off farm, or (most likely) all of these things.
By no means do these data suggest there is not a place for small dairy farms. Indeed, there is a place for them. The days of a traditional 50-cow (or less) stand-alone operation, though, are past us. For one to specialize in dairy both now and in the future, more is required. Those that do decide to grow the herd will find economies of scale working for them, others may explore organic, value added, or look for ways to boost efficiency and reduce costs.  
In early February, a Dairy Summit was held at the University of Minnesota to discuss the future of dairy in Minnesota. University of Minnesota President, Eric Kaler spoke and urged attendees to "reject complacency." In other words, be willing to do more than just the status quo. If farmers are able to "reject complacency", the dairy industry will grow in Minnesota. This may come from smaller farms expanding as children come home to take over the family's operation. It may mean continuing with the same number of cows, while changing methods to either increase revenue or decrease costs. Goals may include metrics such as milk growth, dollars of revenue generated, productivity per cow, or farm profitability, but all should result in a vibrant, energized industry.
Minnesota is a great state for dairy. It has the land base to grow crops and the weather is not too unpleasant (well, for the cows). The infrastructure to move and process milk efficiently is in place. Finally, there is dairy expertise here. This expertise lies in the great dairy farmers in our state, as well as in those that support them and utilize their milk!

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