Tim Pauli’s model offers small-farm hope for an uncertain future

Belleville, Wisconsin — For a while now I’ve had a theory that if we could turn the calendar back about six decades, and proceed from that point in agriculture on a path very different from the reality of what mainstream Americans chose, the world would be a better place.

And when I think these thoughts, Tim Pauli is usually part of the process.

Tim has taken a mid-20th Century management system, updated it with a relatively few technologies introduced since that time, and developed a farming operation that produced milk at an average cost of $4.65 per cwt. over the 14-year period ending in 2006. This figure includes interest payments and depreciation, but not unpaid labor/management, opportunity costs, and other non-cash expenses.

It is this four-dollars-and-sixty-five-cents number that gets me thinking. While other farms sweat thin margins and the next big decline in milk prices, Tim easily weathers the storms. Where conventional theory says the farm must grow at least 10% every year just to keep up, for many years Tim has earned a comfortable living and put money in the bank from the production of about 27 (non-organic) cows. While others work and worry day and night, Tim has time to read great books and watch good movies.

And perhaps most important, in a world of soaring costs for feed, fuel and fertilizer, Tim Pauli has relatively few worries for the future. His total costs in 2006 were less than the average of the previous 13 years, although it’s true that this happened because increases in his supply- and energy-related costs were more than offset by declines in interest and depreciation charges. Tim works with older, simpler equipment, and has paid off his land debt. Costs certainly rose in 2007. Tim also has greater leeway in controlling living costs by the simple fact that he is a bachelor.

But if this system works, it would seem that many, many others could be successful doing something similar. Tim’s way of doing things is so simple, so old-fashioned, so steady: a five-year crop rotation, including substantial managed grazing of older hayfields, and almost entirely homegrown feed. One year of corn harvested on the cob, one year of alfalfa/grass seeding with a barley cover crop, three years of hay and pasture before being plowed back down for corn.

Costs are minimal. Labor is acceptable. Exposure to soaring input costs is manageable. Tim can farm this way as long as he wants or is able.

Can this — should this — be a model adopted by many more farmers, including many more graziers? Is it a better model than all-grass farms that buy their grain?

As we’ve talked over the years, Tim and I have often discussed whether this small-scale, grow-your-own-and-graze model is viable for very many other dairies. Is economics truly the barrier here? Is it that Tim’s farmland is particularly suited to this style of dairy? Or is it mindset — including emotions ranging from boredom to greed — that prevents a younger generation from adopting such a farming model?

We’ve concluded that there are no clear answers. Tim’s farm, with the majority of the tillable land lying deep and fertile (although bordering on too wet), reliably attains high productivity in a crop rotation better than a hill farm with droughty soils. He says he’d probably farm differently on different land.

Also, with land values soaring, it is becoming difficult to justify the economics of owning 2.7 tillable/grazing acres per milking cow as Tim does, rather than milking more cows, grazing more grass, and buying more feed even at today’s inflating prices. Tim’s farm is not a leader in terms of milk produced per acre, although net cash returns per acre are very good (see page 14).

But those returns are aided by the fact that Tim purchased this farm from his father in 1992, paying about $1,000 per acre ($1,500 per tillable/grazing acre). Even with his tremendously low-cost system, Tim would deal with tight margins if he had to pay today’s land and facilities costs. In other words, if he were buying his farm today, Tim’s low cash production costs might not translate to competitive business returns, and family living dollars would be limited.

And he acknowledges that many young people will want to farm more “modern,” thus limiting the appeal of an operation like his. One-row corn pickers, two-row planters and low-horsepower tractors don’t carry a lot of appeal for most people wanting to make a living from farming. “I never tell people that they should farm the way I do, because what I do won’t work for everyone,” Tim stresses.

Yet in a changing world — one where everything related to oil-based energy costs is seemingly returning to the cost-benefit ratio that ruled prior to World War II — there is certainly a futuristic tinge to Tim Pauli’s old-fashioned ways. It is very hard to beat the long-term sustainability of a farm that is so productive while spending so little money in doing it. Indeed, as I’ll get to later on, this may be a near-perfect model for dairies making certified-organic milk at highly competitive costs while matching the original ideals of organic.

What follows is a description of Tim’s farm and farming methods, with a discussion of strengths, weaknesses and possible options for the future.

The box on page 12 describes this farm’s cropping rotation. Until 2002, Tim ran a four-year rotation with 16 acres of corn, four of which were chopped for silage. But Tim quit the silage because he was tired of dealing with spoilage, and went to a five-year rotation with more forage. He usually cultivates twice each year, and uses no sprays. Fertilizer is a few hundred dollars worth of potassium sulfate, plus lime every few years based on soil tests. Soil organic matter is between three and four percent on most fields, a level that has not changed much in recent years.

Tim prefers clovers for grazing, but with all hay made dry in small square bales and a concern for drought tolerance, he plants alfalfa. The standard spring seeding mix is 8-10 lbs. of alfalfa with 2 lbs. of orchardgrass, along with a bushel and a half of barley harvested in late July or early August.

Grazed on narrow strips in a new polywire break after each milking, his cows and yearling heifers generally do a very good job of taking knee-high, bud-stage alfalfa down to a few inches of stubble. There’s a little more wastage if the alfalfa is allowed to flower, and it does suffer in wet years. Indeed, in his low-lyi
ng valley, Tim prefers the marginally dry years that tend to reduce yields on high-ground grazing farms.

Tim always produces enough forage for his stock. He buys an annual average of 200 bushels of shell corn, although in some years he grows all he needs. He also purchases three tons of soymeal for winter protein needs.

The Pauli herd calves year-round, and all breeding is artificial. Tim bred exclusively Holsteins until 2002, when he started crossing with Brown Swiss in an effort to improve milk solids and breeding performance. But breeding problems continued, so he has since used Normande, Jersey and Swedish Red genetics. Each year, seven or eight heifer calves from better-breeding cows are raised, with all other young stock sold in the first month. Breeding-age heifers graze with the milking herd and consume leftover grain.

In 2006, cows produced an average of 15,800 lbs. of milk (3.86% butterfat, 3.12% protein). They are milked in a century-old pipeline barn with 30 stanchions.

During the pasture season, cows are fed an average of 14 daily pounds (top cows get 18 pounds) of a corn/barley/mineral mix that Tim makes every eight to 10 days in a portable mixer mill. Each 100-bushel batch contains 70 bushels of ear corn (35 lbs. of grain) and 30 bushels of barley, along with 50 lbs. of mineral. Salt is available free choice. In winter, dry hay substitutes for pasture, and a pound or two of bean meal is added to the same grain mix. Purchased feed costs average $114 per cow and 64 cents per hundredweight.

As is shown by the financial rundown on page 14, Tim earns a comfortable single-person living from fewer than 30 cows while shipping to conventional milk markets. He paid off his farm debt in short order, and is earning interest on money in the bank. Tim has done this while providing virtually all of the labor himself, but working an average of less than 50 hours a week on the farm. All of the cost numbers and margins over cash expenses would almost certainly rank among the very best in any dairy economic analysis.

While Tim’s fuel, supply and living-related costs will increase, his relative independence from purchased feed, along with a line of simple and fully depreciated equipment (valued at about $31,000), will keep him highly competitive with dairies that spend more.

“If costs keep rising, almost everyone else is going to be in a worse box than me,” Tim judges.

But does this farm work in the modern ethanol- and real estate-crazed world of farmland values? Can you buy a farm based on the financial performance of Tim Pauli’s kind of operation? At 6.5% interest on a 20-year loan for 80 acres priced at $4,000/acre, Tim figures annual principal and interest payments at $36,800. Even if the cows and equipment are already paid for, this leaves only about $10,000 for family living from the level of net cash income Tim usually attains.

There are options for modifying the system, with creative financing, renting, buying more feed, and more milk per cow among them. Tim says his experience tells him that such a dairy could go to 50 or 60 cows before labor and management efficiencies begin to erode and profitability takes a dive.

Tim has mulled other options. For instance, he has penciled a scenario that adds about 15 cows, bringing the total milked to 42, and going to an all-forage farm. Based on historic milk prices, adjustments in per-cow performance and his estimates for costs, Tim figures he would gross an additional $31,000, while spending $17,000 more ($12,000 of that on purchased feed).

Such a move would also require major improvements in his milking barn and milk house if he were to avoid a very large increase in labor requirements.

In addition, there’s the possibility that Tim’s farm would not be as productive in a permanent-forage program without a big increase in purchased fertilizer. Last summer, he pointed to a small area that had not been plowed in recent years. It held far less forage than neighboring acres that had been grazed at about the same time, but were in his five-year rotation.

“My permanent pastures haven’t performed as well as those in the rotation,” he notes. As much as anything, though, Tim wants to control as many variables as possible in these volatile times.

“Part of it is philosophy,” he explains. “I know there are other systems that will probably make a higher net income per acre, but with fuel prices and other uncertainties, things can change. I feel comfortable where I’m at.”

Perhaps it makes more sense for Tim to go organic. He is shipping to a new cooperative that aims to develop a premium market for grass-fed cheeses. While the premiums have yet to materialize, Tim’s heart is in grazing, and he wants to give this market an opportunity to prove itself.

But he has also taken steps to position himself to go organic. Tim already purchases organic-certified fertilizer and seed, and could have his fields certified within a year. Based on a $23 organic milk check, he has calculated that even with cutting back by two cows and suffering a 3,000-pound decline in per-cow production, his annual net income with organic would increase by $16,000 compared to historic conventional prices. Tim figures that his feed expenses would actually decline with organic, as fewer cows would enable him to avoid buying grain altogether, and he would no longer feed supplemental protein in the winter.

Tim’s farm is a near-perfect organic dairy model for the Midwest, providing low-cost sustainability with the small-farm, locally grown, healthy food ideals promoted by the original organic movement. It can provide this food at costs competitive with large-scale conventional agriculture. The model may need to be somewhat bigger to provide for greater family living needs. To keep debt at reasonable levels, it may need to be more creative in reducing the number of acres per cow on which mortgage payments are being made. Renting, crop-share agreements with neighbors and other options would be possibilities.

But as Tim stresses, this is certainly not for every farm. Tim’s system works for him because he is tilling very good soils that have been treated well for many years. A thin-soiled hill farm is not nearly as suited to constant tillage and seeding, and will often require more in the way of outside inputs. More cows, more grass and less grain will likely work better for most of these farms.

Tim also lived frugally during the early years, which allowed him to make progress with a relatively small gross income. He bought the farm at the right time and the right place, and did not have a family to support. Buying a rundown piece of property today, and attempting to farm it in an organic or near-organic rotation similar to Tim’s, will not provide the low-cost/high-margin results he has attained — even if organic premiums are part of the picture.

And if future energy prices are a concern, even Tim’s highly efficient cropping operation uses more fuel than a cow grazing grass and consuming smaller amounts of grain. If productivity issues can be effectively addressed at low cost and low levels of fossil fuel consumption, all-grass farms will be hard to beat in terms of low-cost sustainability. Whether very many organic versions of these grass farms will be able to meet the cost and productivity challenges may be another question.

In other words, returning to a 1950s-style, crop-rotation farm will not provide all the answers to saving the small-scale livestock producer, and it may not even solve very many of them.

At the same time, the short growing seasons, extreme weather variations and deep soils of the Midwest and portions of the East might point to the ultimate wisdom of returning to dairies that graze a lot and grow a little grain in rotation. Wouldn’t this basically be an updated version of what used to work for a lot of small-scale farmers.

In 2008, agricultural land values are being inflated by government crop/energy subsidies and real estate speculation. If this artificiality is removed down the road, land costs are allowed to subside to their true agricultural value, and energy and environmental issues hike confinement farming costs to the sky … might not a Tim Pauli-style farm be highly competitive with anything else out there? Might not a sub-five-dollar “true” production cost support a lot of families and pay off a lot of farm mortgages if land costs were more like those in the days when Tim bought his farm? Might not rural America be a better place to live, and might not the U.S. be a stronger country? This is why I’m intrigued by the possibilities of going back, and starting over.

Tim Pauli’s typical crop rotation

Year one: Moldboard plow in spring. Plant corn at 27,000 bushels/ acre, cultivate twice. Harvest on cob and store in crib.

Year two: Spring-seed 8-10 lbs. alfalfa and 2 lbs. orchardgrass/acre along with a bushel-and-a-half of barley. Harvest barley as grain in late July or early August. In a normal year, graze new seeding at least once in fall.

Year three: Three crops of hay, graze fourth crop.

Year four: Hay and graze, with amounts of each varying with weather and production.

Year five: Almost all grazing.