Efficiencies in scale as US producers expand operation

By Dairy News

EVERYTHING LOOKED new. There were no marks on the walls and any manure which splashed on the milking machines was quickly pressure cleaned-off.

The 80 Holsteins calmly chewing their cuds where spinning around on a shiny rotary platform.

Above all this, in the enclosed viewing platform, there wasn’t any furniture and even the paint smelt fresh.

Owners of the operation, United States brothers Scott and Brad Feuerhelm explained how they were new to dairy farming.

They grew crops and farmed pigs until 19 years ago.

But this 3150-head dairy operation known as Perry Creek Dairy is the second farm they have set-up in north-east Iowa, in the famous mid-west corn belt, in less than two decades.

They along with their father Alan milk 5750 cows and plan to expand their newest operation to milk up to 4000 cows, pushing their total cow numbers across two sites to about 6600.

But it is not just the scale of their dairy operation which sets them apart in the US, the family is expanding when large parts of the industry, particularly smaller operators, are exiting due to margin pressures.

“I really like dairy because it really adds value to our cropping,” Scott said.

“If you are hog (pig) farming all you really get out of it is manure. Here we are selling silage and pumping manure back out onto that ground.”

“(Dairying) has sort of changed now from 20 years ago, with consolidation,” Brad said.

“Twenty years ago, a 1500-head dairy was a big dairy, now we’ve got 3500 and multiple sites.”

The Perry Creek operation has been running since March with the housed cow, total mixed ration system going from zero cows to 3200 in three weeks.

The family stocked the business with excess cows from its first farm called Plymouth Dairy and bought-in total herds from dairy farmers exiting the industry or the excess cows from other herds.

Scott wouldn’t say what they paid for the cows, but said the rate, in early August, was about $US1600 ($A2358) per replacement and they paid less than that.

The Feurerhelms investigated installing robotics with boxes in each pen of the barn but said it would have cost three times the amount of the rotary and they would have milked half the cows.

There were also considerations with labour costs. They have 60 staff working across the two sites and thanks to the new dairy were able to double the herd size by “only” adding another 10 staff.

There were other apprehensions about new robotic technology which plagued the brothers.

“The other thought, was they are kind of new in US; technology is good, but we’d rather be the second or third guys and let others work the bugs out,” Scott said.

Other concerns included training the cows between the two dairies as the Plymouth operation wasn’t robotic.

The Feurerhelms received bank finance for Perry Creek, starting with 40 per cent equity. They anticipate paying off the operation in 12 years.

The cost of production at Plymouth was $US16.25 per 100 weight (about $A0.53 ¢/kg milk) the brothers budgeted on achieving a cost of production in the low “15s” ($US0.15¢/hundred weight) at Perry Creek (about $A49¢/kg). This reduction in cost would come from additional cows with less staff.

“The capital cost went up and the labour went down,” Brad said of the new operation.

Milking includes three employees, three “in the pit” and one pushing cows from the barn into the dairy. The third person acts as a “rover” reattaching milking machines or doing odd-jobs. There’s an automatic teat spray.

Each cow at Perry Creek dairy is milked three times a day. Milking is ongoing, except for downtime for cleaning. Staff work 12-hour shifts, but at Plymouth Dairy they work eight-hour shifts.

Scott and Brad said the shift lengths were decided by staff and a roster ensured weekend work was shared.

Up to 80 per cent of their workforce is Hispanic with employment tenure varying from two weeks to 16 years. Scott and Brad said all wages were above the minimum ($A10.69/hour) with workers starting at $A12.50/hour and moving-up quickly. He said most were paid $A19-$A22/hour with some $A25-$A29/hour.

Their new barn is 400 x 800 feet (122 x 244m), or about 3 ha and has 96 industrial fans down one side and 54 hanging from the ceiling. These fans maintain airflow at about 10 to 11 km an hour, vital for cow comfort and it also helps keep flies at bay.

Cows are calved and “freshened” at Plymouth Dairy, before being trucked the 24 km to Perry Creek. This helps manage work-flow and promotes efficiency, the brothers said.

Production in early August was 90.5 pounds per cow/day (about 41 kg) with a 3.6 per cent butterfat and 3 per cent protein. The somatic cell count was averaging 125 000 to 130 000, something Scott and Brad were thrilled about following a hot and humid July − their most dangerous month for herd health issues.

The family supplies two customers with milk. One is dairy co-operative Agropur about 64 km away where the Feuerhelms milk is used to produce cheese. The other is a customer at nearby town Le Mars called Blue Bunny and it’s famous in the US for its ice-cream.

Feed bunkers sit at the back of the dairy site at Perry Creek, with each bunker clearly labelled.

The Feuerhelms use about 40 per cent of their own feed at Perry Creek and this includes about 55 000 tonnes of corn silage from their own farm. The rest of the feed is bought-in from local farmers.

In early August, the herd received 62 pounds/cow/day of dry matter (28 kg) and included alfalfa (lucerne), soybean meal, cotton seed and minerals with sugar beet pulp used to extend the corn silage.

Breeding extra numbers, in the lead-up to starting Perry Creek, had been a priority for Scott and Brad.

Previously the family bred the genetically inferior “bottom-end” of their herd to beef bulls, but in recent years everything has received dairy semen as the farm has been in an expansion phase.

All virgin heifers and those on their first lactation receive sexed semen, everything else gets conventional dairy semen.

With the coldest month of the year down to about -11°C and rare cold “blasts” pushing conditions to -34°C, all calves on the property are carted south to Kansas more than 1000 km away within days of birth. Calves are trucked three times a week.

The heifers are raised in Kansas and then moved to a feedlot in the nearby state of Nebraska when they are 400 to 500 pounds (181–226 kg).

They don’t return to Iowa until 30 days before they calve.

There’s basically no demand for Holstein bull calves, according to Brad and Scott.

They are also trucked south and sold for $A74 but it costs $A34 to get them to a farm at Kansas.

Perry Creek Dairy is set to expand by 800 cows with the site, including effluent storage capacity, designed for this number of cows.

The brothers said 4000 at Perry Creek was the “perfect size” and ensures they have efficiencies of scale but are also able to dispose of effluent cost effectively.

Perry Creek is anticipating production of about 50 million gallons (220 244 cubic metres) of manure a year.

Annually the manure will be pumped out of lagoons with 25 cm-diametre hoses which string-out across the paddock for about 10 km to inject it into the ground.

Manure is also sold to local farmers at “roughly” 75 per cent of the local price for nitrogen, phosphorous and potassium.

Manure disposal is one of the main reasons why the brothers decided 4000 cows was the perfect size for a dairy operation.

“Go down to south west Kansas lot 8000, 9000, 10 000 dairying on dry lots,” Brad said. “(We can), get rid of manure relatively close, everything within five to six miles (eight to 9.5 km). When you start with 10 000 cows the circle gets bigger and the cost of pumping it.”

Looking ahead, the brothers said their biggest challenges were labour “keeping key people excited and engaged”.

They tackle this by “finding the right cow people and then (getting) out of their way”.

Farmgate milk and feed price risk management is managed via hedging with assistance from a private company in the nearby state of Wisconsin.

Hedging came into the business after the milk price crash in 2009.

“After that fiasco we learnt about margin management,” Brad said. “Making a little is a whole lot better than losing a lot.”

The amount the business hedges depends on where they see the global dairy market. In early August, they had 25 per cent of their milk, for the rest of the current season hedged against risk. Nothing is locked in for next year, but they said if the margin was right, they would hedge up to 75 per cent of their production to ensure certainty.

They don’t match hedges for milk and feed, they are done separately and with different percentages.

Scott and Brad were bullish about milk prices for next year and although moving into dairy has been a “big learning curve” they haven’t regretted making the switch.

Their roles are mostly hands-off and managing staff, but they are still required to muck-in when needed.

“We still get dirty enough!” Brad said.

-Simone Smith