A New Key for Survival of Dairy Operations


Red Barn

Jackie Klippenstein, V.P. of the Dairy Farmers of America loves her job. "I am helping an important sector of our nation survive and be more efficient." she said. We are lucky to have Jackie and people like her, because the economy has been tough on dairy farmers.

The economic crash just didn’t impact Wall Street. Every time you drink a glass of milk, send a kind thought to dairy operators. It became so bad for a while that industry leaders were worried about suicides. "We started a hot line to help", said Jackie.

Algov.com reported: "About 40% of all dairy farms (or 46,000) went out of business from 1999 to 2009, due to falling milk prices and rising costs. Farmers went from getting $21.70 per hundred pounds of milk to $11.30 from 2007 to 2009, while animal feed costs increased 35% and fuel prices rose 30%." During that period, utility bills quietly increased as well.

Mike Dominy, from Alto, in Cherokee County, south of Tyler, Texas said: “The Industry is doomed to certain demise if something is not done quickly”. The Dairy Farmers of America has taken progressive steps to provide information, tools, and training to help Dairy Farmers in this environment. Some initiatives out of Washington D.C. look promising, and there is hope that the worst is over. 

Farmer helping

But any fair perspective indicates that dairy operations have been consolidating, with trends similar to other industries, going toward fewer and larger operations. In areas such as Stephenville, Texas, there has been a steady decline in dairy farmers. “Some have closed shop, and many have moved to West Texas, or New Mexico”, said the V.P. of Stephenville Bank. “One of the trends is the movement to West Texas, New Mexico and less populated areas. One of the largest concentrations of large dairies is in West Texas and New Mexico” said Jacqueline Klippenstein, “They have grown larger to take advantage of economies of scale.”

Part of the problem has been effluent run off, environmental complaints and pressures on pollution issues. Part of the issue has been rising land costs, higher taxes and a pricing structure that has narrowed profits in the milk industry.

But even the largest dairies cannot contain the rising cost of energy. A big part of dairy operating cost is the energy to run pumps, equipment, lighting, water heaters, and milk processing equipment. Electric rates have risen consistently over the past 30 years, yet it is so gradual that many operators haven't noticed. (Remember the old story of slowly boiling a frog, how the frog doesn't hop out of the water, it the heat increases gradually).

But it is not unusual for a 500 cow operation to see monthly electric bills of $20,000, or a 1000 cow operation to be paying $40,000 per month. 

Cows on the way to workSome dairymen and industry leaders have been talking more about “stewardship of energy” as one of the means of survival in this economy. The Dairy Farmers of America is strong on this subject and offers many tools to help the industry. Also, dairy operators can learn by the example of what happened in Holland, Germany and France. Johan Deleeuw, from Holland, and President of WES Canada said: “Energy just kept rising in Europe, and quietly it started really hurting dairy operators."

"We designed a wind turbine in Holland for our dairy operations, to keep them in business, because utilities moved up so high, they needed help. Cash flow was tighter every year. Now in Holland, and Europe every dairyman appreciates the dairy wind turbines.”

If pricing does not improve, then the true winners, those who survive will be those who can cut large fixed expenses. One of the largest “fixed” expenses is the cost of energy.

Consider this. As a rule of thumb, one of the most costly energy items is heating water. It has been assumed by the industry that 25% of a typical dairy operation’s utility bills comes from heating water, that is used to spray, clean, and help sterilize equipment.

Wind-Inc. has come up with an energy system designed for dairies that could offer the additional savings to “survive” and even “prosper”.

“Consider a dairy that has a monthly utility bill of $25,000. Assuming that 25% of that is for hot water heating, and the balance electricity for pumps, lighting and other equipment. We have designed a combination approach, of a dairy Wind Turbine and a solar water heating system that can sit on top of the dairy barn.” Said Ben Boothe of Wind-Inc..

For example, a WES 250 KWh wind turbine can save a typical facility $144,000 to $230,000 per year in electric expense. One solar water heating system, can save a dairy $20,000 to $30,000 per year.

With the combination of wind and solar, the total savings ranges from $160,000 to $270,000 per year. That would almost eliminate the utility bill, for a $25,000 per month operation (electric bill of $300,000 per year).

“A savings of $230,000 per year, might be the difference between survival and failure for many dairies” said Ben Boothe Sr., of Wind-Inc.

Steve Martin, of the Dairy Nutrition and Management Consulting group has said: “Dairy Farmers must take the next step to improvements in overall business professionalism”. He says one of the current realities is the need to understand issues such as “environmental concerns”.

Kreg Welch, is one of the leading builders of dairy facilities in Texas and New Mexico. As owner of Holstein Supply, (Dairy Builders), in Dumas, Texas, he says that: “Good equipment, and good management procedures can be the difference in a profitable dairy and a loser.” Welch also recommends high efficiency equipment to assure lower electric consumption, and suggests that the "25% of the electric bill for hot water", can be reduced significantly with modern energy efficient equipment. If that is true, the the capital expense to put in such as system would be less.

Using wind to produce electricity and solar water heating to make hot water are not the only advantages.

A good example is that the solar water heating system, can also direct heat into specific areas to heat stalls, barns and even the farm house during the cold winter. The wind turbine has a “dump load” that burns off excess energy surges that can easily provide free heat for a barn, shop, or building. So you not only get energy, you get free heating as well!

State and federal environmental standards, and rules for dairy operations are becoming more stringent. “Having a wind turbine, and solar water heater is a strong signal that you are trying to help the environment” said JohHan Deleeuw.

With the USDA REAP program, a person can buy the combo, Wind Turbine and Solar Water heating system, with only about 25% of the actual cost out of pocket. As an example, assume that you spent $950,000 on a wind turbine and $150,000 on a solar water heating system.

Ben Boothe at Dairy Farmers of America

The Reap program of USDA would provide a total of $500,000 outright grant and then the Dairy would have to come up with $275,000. The balance ($375,000) would come from a local bank, where the USDA will guarantee long term loans.

The wind turbine and solar water heating utility savings, will free up enough cash flow to recoup most of the $275,000 in the first year, and will save more than enough to service the debt. Consider this, the dairy then will have 75 to 80% of it’s utilities paid, by wind and sun, for the next 40 years! 

But, Wind Inc., also offers a low price solution. "We have developed a solar water heating system for a dairy, that costs about $80,000. Add to this a smaller turbine, say a 20 kWh turbine, for $65,000 and you can still reduce energy bills by $2500 per month. That comes out to be $30,000 per year in savings. And yes, call us at 800 583 6655 and we will explain how the government will pay you back 30% by rebate check." said Ben Boothe.


For more information contact: www.wind-inc.com 800-583-6655