Cost-effective dairy farming – US-style

Published 19 December 12

Holsum Dairies near Hilbert in Wisconsin milks 8,000 cows across two sites that were constructed in 2001 and 2006 respectively. The business, which until recently was run by vet-turned-dairy farmer Kenn Buelow, is a good example of innovation and sustainability in large-scale dairying.  The dairy operations were honoured to receive the 2012 US Dairy Sustainability Award based on economic, environmental and community sustainability practices.

With strong financial backing from a silent partner who had been a client of his in New Mexico, Buelow secured a 30ha site in Calumet county Wisconsin to build a 3,600 cow dairy.  The business model was a simple one: to sustainably produce quality milk at the lowest possible financial and environmental cost per litre.  This would be achieved by focusing management activity on the core value drivers for the business, outsourcing non-core activities, exploiting the potential value of waste, and effectively managing risk. The silent partner would act as sole financier to the business, providing both debt and equity at commercial rates and avoiding the need for bank finance in the capital structure of the business and all the issues that would entail.

Holsum Irish Dairy was built on Irish Road, Hilbert, Wisconsin in 2001 for 3,600 Holstein cows housed for 365 days a year in free-stalls (cubicles) and milked though a single 72-point rotary milking parlour, operating 24 hours a day on a 3-shift system.

Milk is sold locally to a cheese manufacturer supplying cheese to the pizza market. Supplying a commodity market enables the business to accurately hedge the value of its milk sales as the contracted milk price is linked by a transparent mechanism to the value of cheese and cheese derivatives traded on the Chicago Mercantile Exchange (CME).

The only land that the business owns is the 30ha, the dairy buildings, feed pads and digestate lagoons stand on. All non-core operations, ie forage production, harvesting, calf and heifer rearing, milk haulage and manure spreading, are outsourced to local farmers and contractors - although recent high feed prices are forcing the business to consider acquiring more land. 

The success of this strategy is dependent on the establishment and maintenance of strong relationships with local farmers and contractors with clear pricing mechanisms for contracted crops that allow all parties to hedge their positions, as required, in a fair and transparent way. Kenn therefore developed a pricing mechanism that links the price paid for corn (maize) silage and alfalfa (lucerne) haylage to the market value of dry corn and soybeans respectively, which the contracted growers would otherwise grow. Typically, the growers earn $50 more per acre from supplying Kenn than growing crops for the market.

Additionally, the contracts are conditional on growers taking, pro-rata to their contracted area, all the manure from the dairy in the form of separated digestate with 50 per cent of the value of nutrients (N, P&K) in the digestate available in the first year offset against the price Holsum pays for forage.

All manure is processed through an anaerobic digester to produce biogas which in turn is burned in an onsite Combined Heat and Power (CHP) plant to generate electricity and hot water.  The recovered heat is used to maintain digester vessel temperature, provide hot water for the dairy and heat the floors of the cattle housing.

Meticulous attention to detail at every level allowed Kenn to add a second dairy - 4,000 cows milked through an 80 point rotary at Elm Dairy - in 2006 and achieve and maintain remarkably low operating costs through a period of rapid business expansion. Kenn says the team learned much from its experience at Irish, and made a number of changes to the design - how side curtains are used to protect cows from the elements and control ventilation; how gravity is used to better manage waste; the design of roofs for better ventilation; how heat is transferred.  Power consumption as a whole is very efficient on the units. US dairy farming magazine Hoards Dairyman recently calculated average energy consumption on dairy farms at 1000kWh per cow; it's 600kWh per cow at the Holsum farms.

In the 10 months to October 2012, the average cost of production across both units has averaged below $15 per cwt, the equivalent of just over 20ppl at the prevailing exchange rate. This is against a Wisconsin milk price that has ranged between $17 and $23 per cwt (23.2ppl to 31.5ppl) over the same period.

 

Key points:

  • Contracted milk price is linked by a transparent mechanism to the value of cheese and cheese derivatives traded on the Chicago Mercantile Exchange (CME).
  • All non-core operations are outsourced to local farmers and contractors.
  • Focus on establishing and maintaining strong relationships with local farmers and contractors - with clear pricing mechanisms.
  • All manure is processed through an anaerobic digester to produce biogas which in turn is burned onsite.