Grass-based dairy model shows how to do it.
Eric Gaul had no net worth when he started dairying in 2003. Today, at age 31, he's worth over $300,000 and is cruising toward his goal of becoming a millionaire.
This Kieler, WI, dairy producer is following a Millionaire Model Grazing farm concept developed by his landlord, Larry Tranel. Tranel, an Iowa State University extension dairy field specialist, is using the model to demonstrate that young people can start farming with limited resources and become millionaires in 20-25 years.
It doesn't always take that long. Tranel, who does annual financial analyses for five farmers using his model, says three became millionaires in 15-17 years. Gaul and his wife, Amanda, are on a similar fast track.
“They're doing a lot more than the model actually calls for,” says Tranel. “The model is 80 cows on 80 acres, and what's happening is, everybody's milking more cows.”
For most of his roughly 20-year extension career, he's promoted dairy grazing as a viable way for young people to start farming. With some initial help, he says folks who know how to manage cows and pastures can make significant amounts of money without working too hard.
“I find that farms with 80 to about 150 cows are extremely profitable,” he says. “And the dairy industry and dairy processing are the two biggest economic multipliers that we have. So the best thing we can do for our communities is keep small dairy farms around.”
His model includes five basic fundamentals:
Crossbreeding. Besides improving milk components, crossing Holsteins with Jerseys and other colored breeds improves reproductive efficiency and overall herd health.
“So these 80 cows for one person sounds like a lot, but they're easy keepers,” says Tranel.
Combining pasture-based and confinement dairying. Rotational grazing is supplemented with TMR feeding, comfortable stalls and other confinement-system practices.
“We take the best of both worlds and make this hybrid system that really works,” he says.
Labor efficiency. All the farms have low-cost milking parlors and facilities that permit labor-efficient feeding and manure handling.
Annual financial analyses. Tranel uses Dairy Trans, a software program he developed, to do a complete financial analysis on each farm. Then he gives producers recommendations on what they need to do the next year to improve profitability.
A good quality of life.
“These are all husband-wife operations that don't work themselves to death,” says Tranel. “They work hard, but we try to get each person to work less than 3,000 hours a year.”
He put his model farm concept on paper in the early 90s, when he was an extension agent in Wiscon-sin. Early on, he worked with two beginning dairy producers who followed the model. But, overall, he wasn't having much success selling the concept.
He bought his farm in 1994, intending to turn it into a grazing dairy to demonstrate that the model can work. He converted 80 acres of cropland to pastures, seeding mixtures of alfalfa and reed canarygrass or tall fescue plus a few pounds of kura clover per acre.
Two renters came and went, then Tranel milked 36 cows in his 32-stall barn for more than a year while still working in extension.
“That's when I saw that somebody could easily milk 80 cows and get the whole model set up,” he says.
He custom-raised heifers for several years before signing an agreement with the Gauls in late 2002. Eric Gaul's two brothers, who farm separately, also were involved in the deal. The brothers and their wives bought cows and rented the farm from Tranel. Eric agreed to provide the labor in return for 25% of the milk check.
Before the cows arrived, Tranel and the Gauls built a swing-10 milking parlor in a lean-to on the barn and converted the stanchions to freestalls. The cost of those improvements, and of a fenceline feeder and manure pit, were shared. Half the labor was provided by Tranel; half by the Gauls.
Gaul borrowed money and bought one-fourth of the cows after one year, then bought the rest of the herd just over a year later. Since then he has purchased equipment and added stalls, expanding the herd with homegrown heifers. He's been able to grow the herd fast due a low cull rate in the crossbred herd. Last winter he built a hoop building to house more cows and now milks about 110.
The pastures are divided into four-acre paddocks and cows are moved to new grass daily. After milking, they get a partial TMR of grain, minerals and a small amount of hay.
The herd averages about 15,000 lbs of milk. Though Gaul has paid less than the prevailing cash rent for the land and buildings, he's compensated by providing extra labor to improve the facilities, says Tranel.
He says the young farmer earned more than $147,000 in net farm income last year. Between 2003 and 2007, Gaul's net farm income averaged almost $92,000 a year, and he earned almost $35/hour for his labor.
“He's done a great job managing the operation, plus he was blessed with a milk price that averaged about $17/cwt over those five years, where in our early projections we were figuring about $13,” says Tranel.
Gaul recently signed a contract to stay on the farm two more years. But his herd has outgrown it, and he hopes to buy his own farm when this contract expires.
Tranel is okay with that. He considers his operation a start-up farm to be used by young people until they can afford their own places.
“The goal is to get them enough net worth so they can go out and get a loan,” he says.
When Gaul leaves, Tranel will look for another young tenant, and he encourages landlords and bankers to help young farmers get started in similar fashion.
While there's some financial risk, it can work if the right people are involved, he says. Good communication between landlord and tenant is one of the keys to success.
“You can't overemphasize the people part of the equation,” says Tranel.