Answers are from the Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Extension economist, University of Minnesota Center for Farm Financial Management. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].

We were planning to expand our dairy operation in 2022, and then milk prices soured, so we put our plans on hold. With milk prices showing life again, I’m wondering if this is a good time to expand. We milk 125 cows in a swing parlor and own 200 acres of cropland. We rent an additional 150 acres. We are planning to expand to between 300 and 350 cows. We would have to build another freestall barn, buy 150 to 200 heifers, and rent more land. We owe $150,000 on our cows and machinery, and we own the farm free and clear. Please advise.

Kestell: I would give a very complete and comprehensive evaluation of your current operation and future needs during and after your planned expansion. Questions to ask yourself and come to a resolution on are numerous and will affect the cost and outcome of your operation. For example: Is your manure storage and handling up to the increase in volume it must handle? Will you need additional heifer facilities to handle the expanded heifer population? Is there labor available in your area? Have you investigated a source for buying quality heifers and at what cost? Have you had a conversation with the banker about your future financial needs, and is he or she on board with your expansion?

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These questions are just a few that need to be asked and answered before moving forward. I have seldom, if ever, heard of an expansion that came in under budget, so be realistic and be prepared for the unexpected to occur — and have a plan of how to deal with it. Take your time, because the planning is just as important as the execution of the plan.

Miller: Start by going through a planning process. Contact a dairy business consultant who can assist you in putting together an expansion plan. There are many aspects to consider with this size of expansion, including labor requirements, feed storage, manure storage, forage and grain needs (grow or purchase), building costs, cow and heifer flows, and others. Milk prices have improved in the past 18 months, but how long will that continue? There is currently a shortage of replacement heifers, so budgeting for this will need to be realistic. In addition, contact your milk buyer to be certain it will take additional milk. Fortunately, you are in a strong financial position, so take the time to plan on paper to lead you to the best decision.

Wantoch: When thinking about an expansion, the first questions that might come to mind are likely about the type of building and construction needs. However, before you start working on designing buildings, you should work on developing a business plan. This plan should outline how your farm plans to expand (cows, buildings, etc.) and what your goals are for the farm’s future success. It should also include a comprehensive financial plan that shows your farm has been profitable at its current level and justifies the expansion with projected future profits down the road.

You’ll want to keep a few benchmarks in mind, such as debt per cow (total liabilities divided by average number of lactating and dry cows). Debt per cow should be less than $5,000, as high debt per cow will greatly affect profitability and susceptibility to a lower milk market. Work with a dairy consultant to help you plan for a successful farm business expansion.

Raising dairy beef

My parents own a Holstein dairy farm in central Wisconsin. We milk 180 cows in a double-eight milking parlor. I have come home to help them on the farm full time after working three years off the farm after graduating from college. Five years ago, my parents started breeding the bottom third of our herd to AI beef bulls. They increased this to 50% a couple of years ago. The top half of the herd and Holstein heifers are bred to Holstein bulls using AI sexed semen. They sell dairy-on-beef calves when they are 2 to 3 days old. They are currently getting $750 per calf, down from $900 per calf last summer.

I would like to keep the calves and feed them out and sell them as finished steers. Beef-on-dairy steers and heifers are averaging $1.90 per pound. I think we have the labor and facilities to handle these extra cattle and plenty of feed. I would also like to sell some of them locally as homegrown beef halves and quarters to friends and family. Do you think this is a venture we should consider? What are the advantages and disadvantages of doing this?

Kestell: Congratulations on your decision to return to the family farm. I hope you have a plan for your future. As you know, many dairy producers across the U.S. have decided to breed a portion of their herd to beef bulls. Some have gone to 100% dairy-on-beef, and in many cases, this works great. I am not sure what percent of dairies have decided to finish out these crossbreed calves, but several I know say it is working fine for them.

There are always pros and cons to every situation. So, the best way to get firsthand advice is to talk to several farmers who are doing it. It will take longer to see the cash flow if you decide to finish them out yourself. It likely will be more complicated but more profitable to market the finished product as homegrown beef. Talk to a butcher who is on board with your plans. Good luck.

Miller: This may be a good addition to the business. A partial budget analysis will provide direction to answer this question. Start by completing a forecast income-and-expense statement including beef sales — number sold times price per pound times weight; be certain to include some death loss. From this number, subtract expected expenses — labor, feed, vet and medicine, bedding, utilities, insurance, and other expenses. Compare the returns from selling fat cattle to the lower risk selling at a couple of days old. Be certain to subtract the price of the calf in the raising example so you can compare returns on an equal basis.

Extension has a feedlot enterprise worksheet to assist in completing this budget. If you do start this venture, remember it will take time before revenue comes in, so be certain you can handle the cash outflows until beef sales start.

Wantoch: Current market prices have some dairy farmers looking to capture additional revenue by feeding out dairy steers, according to Bill Halfman with University of Wisconsin Extension. Accurate comparisons must be made to determine if owning these calves longer is the best fit for your operation.

Halfman suggests considering these questions: Do you have enough room for housing the extra animals? Overcrowding will not benefit the steers. For steers to perform well, they must be kept clean and have places to get out of the wind and wet conditions, especially in the winter. Is there adequate labor? Is the farm already struggling to keep employees to handle existing chores? Does the farm have enough feed and acres for applying manure? If either of these is already tight, it may be more challenging.

The next step would be to pencil out potential options to determine if owning these animals longer will result in a greater net return than selling them as young calves. Keep in mind, feeding out cattle has some narrow margins, with an average of $50 per head net return, but this varies for all farms.