Don’t break the bank 
on milking facilities

Low-cost milking centers can meet goals for efficiency and technology while allowing producers to put capital into cows

By David Galton and Jason Karszes

• To put capital into production units (cows) – not facilities.
• To avoid committing all their borrowing capacity to new milking facilities. They could keep debt in line for farm sustainability.
• To increase the number of cows milked and hundredweight of milk harvested in a better work environment. 

Points To Consider
    You can expect certain economic consequences with higher investment in a milking center:

• The greater the number of cows needed to be milked.
• The greater the debt service on a per cow basis.
• The greater the impact of lost capital on the business’ net worth.
• The greater the use of the business’ existing borrowing capacity.

    The table illustrates the different impacts on a dairy’s financial position between a low-cost, medium-sized parlor and a larger parlor with some technology. It compares milking facilities with different capital investments, efficiencies and milk production. The comparison made these assumptions: the parlors operate 12 hours, labor cost $10 per hour, net income per cow was $600, investment per cow without the parlor was $4,500, lost capital would be 50% and equity before the parlor was 60%. 
    While both parlors can be profitable, the dairy building the larger parlor must be stronger financially before starting the project compared to the low-capital parlor. A larger, more costly parlor requires a dairy to build cow numbers to maximize parlor use and minimize the impact of lost capital and debt service requirements.
    As the three producers show, there are a lot of ways to control milking facility costs. Used milking equipment, minimal structures, converting existing buildings to a flat-barn system or updating an existing parlor can fit a dairy business’ goals and budgets. These strategies can minimize lost capital and lower debt service per cow compared to larger, more technology-loaded parlor systems. But they still let dairies pick up efficiencies in milk production and cow flow.

A Look At Flat-Barn Milking
    These are usually a transition from a tiestall facility to a parlor system. Even if that isn’t your long-term plan for milking facilities, a flat-barn setup has advantages over a tiestall barn system. It can:

• Increase labor efficiency to as many as 40 cows per operator per hour compared to 20 to 30 cows per operator per hour in a tiestall barn.
• Require low capital investment for increased labor efficiency. Flat-barn facilities require less labor for milking and cow care compared to a tiestall system.
• Operate at lower cost, due to labor savings, maintenance of a smaller milking facility, and less hot water and detergents required for cleaning.

Avoid Lost Capital
    Lost capital is the difference between the cost of a capital investment and the increased market value of the real estate property. As capital investment for a milking facility increases, the dollar value of lost capital also increases. This results in a greater decrease of actual dollars of net worth and in the percent net worth, especially if the project is 100% financed. 
     As a rule of thumb, 50% lost capital is used for milking facilities and livestock housing, though a given dairy may be able to justify more or less lost capital.
    Lost capital and its affect on a dairy’s equity position play a major role in determining the amount of borrowing capacity the business has and the amount of money to spend on the total expansion. By minimizing the investment in the milking center, more capital can be available to invest in other aspects of the dairy.

Create Efficiency
    Capacity, or the hours per day a parlor is used and the number of cows per hour put through it, significantly impacts costs per hundredweight, the affect of lost capital on your business and return to assets. 
    At less than capacity, the business’ financial condition (percent equity) becomes more critical and the capital investment for the milking facility has a larger impact. On the flip side, parlors operated at greater capacity lower debt service on a per cow basis.
    Some efficiency points to consider include:

• Make a priority the investment in technologies that improve cow throughput per hour and the number of hours of operation. These include rapid exit, automatic takeoffs and effective crowd gates.
• Other technologies such as sort gates and milk meters need to be justified by their ability to decrease operating expenses and/or increase milk production.

     Even low-investment parlors won’t work if labor and cow flow efficiencies aren’t reached. As a rule of thumb, all milking centers should try to reach 70 to 80 cows per milker per hour to maximize the benefit of a parlor investment.

Never say it can’t be done

    Dave Tillotson, Pavilion, N.Y., can take a sow’s ear and turn it into a silk purse. His ingenuity for low-cost construction and operations is evident in much of what Tillotson does, but most clear in his milking parlor built as the dairy expanded from 90 cows in 1991 to 401 this year. 
    Tillotson hires his crops custom harvested, his manure hauled and his heifers raised from 2 months to breeding age. He concentrates on what he does best: calves and cows. 
    Tillotson’s double-11 parlor, expanded from a double-7 three years ago, may be “crude and self-built” as he describes it. But the parlor gets the job done at low investment. The dairy, operated with Tillotson’s wife, Noreen, produces 1.7 to 1.8 million pounds per worker on 3X milking. 
    The original double-7 that took Tillotson’s cows out a stanchion barn cost $10,000. The recent expansion added $18,800 to the parlor cost, including automatic takeoffs.
    Much of the cost savings come from putting the parlor in the farm’s old basement barn. Tillotson’s abilities to find good used materials and put them together keep costs low.
    “I have no lost capital in the parlor,” Tillotson says. “I built it out of cash.”
    Tillotson expanded his herd “to get to a size so everyone had an equal amount of time off and a better quality of life.” His employees now work 40-hour weeks.
    Why a double-11? “It was the length of the guardrail,” he says. That’s just one low-cost feature. Tillotson found some highway guardrail, which he calls “indestructible,” to use as the rapid-exit bar. It drops to the floor and cows step over it to exit. Other low-cost features include:

• A light, open parlor in the existing barn created by raising the roof and putting white polyboard on the walls and ceiling. Tillotson recemented the floor.
• Cow dividers, molded by Tillotson from old pipes, are cut on an angle so they swivel naturally.
• Used pipes attached to the guardrail.
• The bump shields and liner cost $450. It’s not stainless steel but durable.
• PVC pipe split to cover the curb.
• Milker units and other equipment were in the double-7 parlor.

Dave Tillotson, with his son Brent, built a low-cost parlor by putting it in an existing building and digging up used components such as highway guardrails.

(a) Total capital investment includes all costs to build a particular style of milking facility. 
(b) Total number of hundredweights of milk produced during the year equals milk sold per cow per day times the number of cows milked per hour times the number of hours per day the milking facility is operated. 
(c) Depreciation expenses are straight-line depreciation of the total capital investment over 15 years.
(d) Investment per cow is the total investment spent for the milking facility and does not take into account lost capital.
(e) The percent change in net worth represents how much the business’ net worth decreased due to lost capital for the investment.
(f) The payments are based on 100% financing of the parlor over 7 years at 8.5% interest.

A parlor for $35,000
    The Brockway family, Fort Covington, N.Y., doesn’t have its perfect parlor. But the financial benefits of installing a used parlor into an existing 60-stall barn far outweigh the benefits of subtle design features, say partners Kevin and Russ Brockway.
    They operate their dairy with 300 milkers in partnership with their father and mother, Bill and Loretta, and 2 full-time-equivalent employees, who are all family members. Kevin’s wife, Lorrie, and Russ’ wife, Pam, work on the dairy. Third generation family members include Michael, his sister Nichole, and her fiancé, Bob.
    Hilltop Dairy’s transformation from 60 cows began in 1979 when Russ returned to the dairy. The Brockways doubled their herd size to support a third family, then grew to 250 cows in late 1993. 
    At that time, the family took stock of their dairy’s financial situation and labor efficiencies. High labor demands caused them to think of a freestall and parlor setup. Like many producers, they built cow numbers and a freestall barn before investing in a parlor. 
    Next came the decision about the parlor. At first, the family considered a $100,000 investment in a new structure. But the Brockways realized, with outside input, that they didn’t need to invest that much.
    Two decisions allowed them to get a milking parlor up and running for $35,000.

• They used the existing stall barn for the structure and supplied much of the labor for construction themselves.
• They bought a second-hand, double-eight herringbone parlor for $20,000. It came with automatic takeoffs and individual meters, which the Brockways removed.

    The family spent $6,000 on the holding area concrete and gates. They didn’t put in a crowd gate.
    If this sounds simple, it wasn’t. In the months prior to the parlor construction, the larger herd had to be milked on part of the old pipeline. This forced Kevin and Russ to work sometimes 21 hours a day.
    The parlor met the Brockways’ goals: to improve labor efficiency and maintain production of high-quality milk. The number of cows milked per hour doubled from 30 in the tiestall barn with its pipeline to 55 to 60 in the single-file exit, with one person instead of two milking. Pounds sold per worker hit 1.15 million on 2X milking.
    Milk production didn’t increase significantly, says Kevin. But the dairy was able to ship more total milk, up to 23,000 pounds per cow. 
    Next on the Brockways’ agenda is to expand the parlor to a double-16 by 2003 with no anticipated change in herd size. If a parallel parlor replaces the herringbone, they won’t have to extend the pit length or make significant structural changes. This change, done when Michael Brockway graduates from Cornell, should cut the time of 2X milking to four hours.
    “Before we made changes because we had to,” says Kevin. “Now we will be making changes because we want to.”                                                                     

Kevin Brockway works more efficiently in the family’s double-8 herringbone parlor that cost $35,000 to set up.

 

• Look around and consider all options.
• Seek advice.
• Keep your debt below $3,000 per cow so you can withstand a year of poor milk prices.
• Make use of existing facilities.

Brian, Frank, Terry and Eric Ziehm of Buskirk, N.Y., used a flat-barn parlor to make an economical transition from a tiestall pipeline to this double-12 parallel.