Economic Analysis of Major Dairy Forage Systems in Pennsylvania: The Role of Intensive Grazing

Abstract

The economic impact of intensive grazing for a representative Pennsylvania Holstein (Bos taurus) dairy farm was evaluated using a Monte-Carlo farm level simulation model. Ten harvested forage combinations with or without intensive grazing of pasture were modeled. For each of 10 farm scenarios, least-cost rations were developed to meet the requirements for the level of milk production. Net cash farm income, and the after-tax net present value of ending net worth were used as profitability measures. The after-tax net present value distributions of the 10 dairy farm scenarios were also compared using stochastic dominance analysis. Results showed that under the assumption of equal milk production level (IS 800 Ib/cow per yr) and depending on the forage crop mix, annual net cash farm income with intensive grazing increased by 14 to 25% compared with farms without intensive grazing. These increases translated into $8 400 to $12 400 more in annual net cash farm income for a typical Holstein dairy farm with a 60-cow herd. The observed increase in income and profitability for farms with intensive grazing was largely due to the decreased cost of milk by an average of $1.20 to $1.42/cwt, depending on the forage crop mix analyzed. A risk assessment of intensive grazing using stochastic dominance analysis showed that most farms with intensive grazing were preferred to the nongrazing dairy farms under the assumption of equal milk production output per cow. When milk output per cow was allowed to fall for farms with intensive grazing, however, the stochastic dominance analysis showed that the robustness of the preference for intensive grazing depended on the harvested forage mix used. Milk yields could only drop from 4 to 6% before the grazing forage crop mixes were no longer preferred under risk. Research Question The current cost-price squeeze faced by dairy farmers is prompting many to seek alternative forage feeding systems to control feed costs and improve profitability. Incorporation of intensive grazing into current forage feeding systems has gained increasing interest in the Northeast. The objective of the present study is to analyze the potential impacts of intensive grazing vs. harvested forage systems on profitability for typical Pennsylvania dairy farms. The study also compared the preference of forage systems with intensive grazing under risk and uncertainty. Literature Summary Little research has investigated the economic impacts of grazing-based forage systems for U.S. dairy farmers. Most research on dairy grazing has emphasized either the nutritional impacts of grazing or the effects of grazing on milk output per cow and animal weight gain. Preliminary economic evaluations of the benefits of grazing in the Northeast have shown an average increase in net farm income of between $12l/cow (Pennsylvania) and $15Ucow (Vermont). Most of these studies have the same limitation, however, the use of partial cost approach leaving unaccounted for such factors as fixed costs, machinery costs, and labor requirement changes. A more complete whole farm economic analysis is needed in order to quantify the benefits of incorporating grazing as part of whole farm forage systems. Study Description A Monte-carlo farm level simulation model was used to evaluate the impacts of intensive grazing on a representative Pennsylvania Holstein dairy farm. Ten harvested forage combinations with and without intensive grazing were modeled (Table 1). All 10 farm scenarios differ on the basis of forage combinations composed of corn silage, alfalfa hay and haylage, grass hay and haylage, and summer pasture. These 10 forage combinations represent over 75% of all systems found on Pennsylvania dairy farms. The model simulates the economic activities of the farm for a multiyear period and generates data including crop production, feed purchases, variable and fixed costs, debt payment, and machinery replacement. Also, the model recursively simulates the dairy herd dynamics on an annual basis. The economic performance of the 10 farm scenarios simulated was compared using the following output variables: (i) annual net cash farm income (total receipts minus total expenses); (ii) cost per hundredweight of milk; and (iii) the present value of ending net worth (farm net worth at the end of the simulation period discounted to present dollars). In addition, a risk assessment using stochastic dominance was used to identify the relative preference of forage combinations with and without intensive grazing under price and yield uncertainty. Applied Questions What are the potential income and profitability benefits of intensive grazing compared with harvested forage sources? Under the assumption of equal milk production levels (18 800 lb/cow per yr), simulation results showed that the 7-yr annual average net cash income for farms with intensive grazing increased by 14 to 25% compared with similar farms without intensive grazing depending on the forage crop mix. These increases translated into from $8400 to $12 400 more in annual net cash farm income for a typical Holstein dairy farm with a 60-cow herd (Fig. 1). The observed increase in income and profitability for farms with intensive grazing was largely due to an average decrease in the cost of milk of $1.20 to $1.42/cwt, depending on the forage crop mix analyzed (Fig. 2). The farms that benefited the most from intensive grazing were those that grow corn silage and grass hay because protein and grain supplements required were substantially reduced with high-protein pastures. In comparison, the farms that grow protein-rich alfalfa in addition to corn silage and grass hay benefited less from pasture as the changes in grain and protein supplemental needs to meet milk production goals were smaller. All farm scenarios showed an increase in farm net worth at the end of the 7-yr simulation period, with farm scenarios without intensive grazing generating between 27 to 39% increase in farm net worth. In comparison, under intensive grazing, the real increase in farm net worth was higher by an additional 9 to 12 percentage points depending on the forage crop mix. Figure 1 Open in figure viewer PowerPoint Effects of intensive grazing on net cash farm income. Figure 2 Open in figure viewer PowerPoint Effects of intensive grazing on cost per hundredweight of milk. Are dairy feeding systems with intensive grazing riskier than harvested forage systems? A risk analysis using a stochastic dominance approach showed that farm scenarios with intensive grazing were preferred to the nongrazing dairy farms under the assumption of equal milk production. When milk output per cow was allowed to fall for farm scenarios with intensive grazing, however, the stochastic dominance analysis showed that the robustness of the preference for intensive grazing depended on the harvested forage mix used. Milk yields could only drop from 4 to 6% before nongrazing forage crop mixes were preferred under risk. These results suggest that the economic gains through intensive grazing are subject to good managerial ability, including efficient and cost effective feed use as well as the achievement of high milk production goals. Table 1. Forage feeding strategies analyzed by the model. Farm scenarios without pasture: FSl = Alfalfa. grass, corn silage, and corn grain FS2 = Alfalfa, grass, and corn silage FS3 = Alfalfa and corn silage FS4 = Grass and corn silage Farm scenarios with pasture: FS5 = Alfalfa, grass, corn silage, corn grain, and summer pasture FS6 = Alfalfa, grass, corn silage, and summer pasture FS7 = Alfalfa, corn silage, and summer pasture FS8 = Grass, corn silage, and summer pasture FS9 = Alfalfa, grass, and summer pasture FS10 = Grass and summer pasture