KTS Farm—Making the Transition

For the last 34 years Kress and Tammy Simpson have run a small 180-acre (72-ha) seasonal grass-based dairy (KTS Farm) in the Elk Run Watershed of Rutland Township in Tioga County. Through the vagaries of weather and markets they have built a successful business that they are now ready to transition. While their son and daughter have helped with milking chores growing up, they are now exploring other learning opportunities and Kress took steps to transition the farm business to a younger farmer that has been involved in the business. Whole Farm Success Kress first learned about Holistic Management in 1992 when Allan Savory came to the local fairgrounds and gave a presentation. Ed Martsolf then ran a series of workshops later that year and Kress came to Ed’s first class along with 20-25 other people. That group then formed a management club that has been going for the last 20 years. Some of the other dairy farmers in that group have moved on to crop farming and living on gas royalties because these grass-based dairies found they were not able to achieve a sustainable quality of life and a profitable business given the weather and markets. Why has Kress been able to have the quality of life he and his family wants and the level of profit? “I’ve been practicing holism for 17 year,” says Kress. “I had been reading The Stockman Grassfarmer and saw all these articles about Holistic Management, so I called Allan Nation and asked him: ‘What’s up with this holistic stuff.’ They recommended I explore it so I went to Ed’s class. That’s when I had a series of paradigm shifts that resulted in our dairy being not only grass-based, but also seasonal. That’s made a huge difference. “With a seasonal dairy, the spring can be very stressful with a fluctuating market. I had originally chosen not to be certified organic because it didn’t pay to do so. But about 3 years ago we decided to become certified organic and sell our milk through Organic Valley because the conventional market was fluctuating so much you couldn’t plan your income. Holistic Management is about planning, so I knew it was time to make the switch to certified organic and work with a company that could offer me a steady contract.” That focus on the whole farm was critical to help Kress set up the farm for a successful transition Transitioning the Business Kress admits the dairy business can take its toll. Even with a seasonal dairy, nine months can be a long time without a vacation or weekend off. So Kress began to invest in the next step—an employee. “Three years ago we hired our first full-time employee, Mike Geiser. He didn’t know anything about seasonal dairying but he was eager to learn. The first day he came to work, we pulled out the Holistic Management® Grazing Chart and explained how we grazed and why. One of the main reasons we hired Mike was so we could start taking weekends off and going on vacation. So that first day, we sat down and planned around our families for the upcoming grazing chart. We mapped it all out on the chart. Mike loved how we operated the dairy and the work so over time we started talking about how we could transition the business to him. “He’s in the process of buying my dairy herd and I’ll continue to mentor him as well as lease him the land. He has the same philosophy as we do about the dairy and the timing is right for someone else to take up the reins. I gave him the pick of the herd and he has a 5 year lease on the land and equipment with an option to re-lease. I’m going to focus on growing more feed for the herd, and Mike will purchase the feed. We’ll continue to live on the farm and since Mike lives nearby this arrangement works out for us. “Holistic Management has made it very clear to me, if something isn’t taking you toward your goal, you don’t do it. I’ve attained what I have because I’ve followed that guideline. I’m not broke. I haven’t used government programs other than a loan from FSA. In 1998 I invested $100,000 to help my dad refinance. 30 years later, I’ve been able to cash flow that original investment over the years to where I have the equity to sell the cattle to Mike and offer him the lease and purchase a milking parlor that works so I can transition the farm to a younger farmer.” Farm Growth Along with the Holistic Management Grazing Chart, Kress has found the Livestock Production Plan to be most useful for him in long range planning. He forecasts his herd growth, milk cow replacements, and cattle sales with this tool. It provides a way to estimate grazing paddocks and stored forage needs. The forecasting also allowed him to map scenarios of farm growth that helped him in determining appropriate herd size and profitability margins as he talked with Mike about the business transition. One point of pain that needed to be resolved was the type of dairy parlor. Kress notes, “We upgraded to a Swing 10 Ireland style parlor for a number of reasons. It was an investment we could afford and we did the financial planning to determine how it would pay for itself. Mike wouldn’t be here still if we hadn’t made that investment. Most of those old barns and parlors in this area mean that one person can only milk 35-40 cows. Last year we milked 88 cows, which were too many even with both of us. Now, we’ve scaled down our herd to 66 cows that Mike will be milking. This level of production has worked for us as we expect 8,000 pounds of milk/cow/year over a 9-month period. We’ve determined it takes about 600,000 pounds of milk/grazing cell to be profitable. With Mike working that number of cows to pay off his loan and lease and other direct expenses, he should be able to grow a sustainable business and have a sustainable quality of life.”   Making Tough Decisions There have been a number of challenges Kress has had to face over the years, but with recent weather and markets, dairying has been even more challenging. He notes, “It’s been a challenging time for dairying with the drought. The droughts mean less forage grown and more expensive feed and it is harder to get. We have a drought plan we’ve had to put in effect given the last 2 years have been less rain or poorly timed rain. Normally we have 2 weeks in August when we feed off of stored feed because of the summer slump. Last year we were a month ahead of schedule when we had to begin to purchase feed. I knew that was a year where we had to settle for breaking even, but I didn’t want it worse than that. “Given the situation in August we had to make some tough decisions, but I was clear we weren’t going to go backward and back into debt. When November came and it was clear things weren’t getting any better from a forage situation, I told Mike he could have the pick of the herd. The rest I direct marketed and got the best prices I could.” Because Kress responded to the situation in the context of multiple objectives toward his holistic goal he was able to protect his equity and move forward in his plans for transitioning the farm. Production Transition Over the years, Kress has adapted the production system at KTS Farm. His father raised Holsteins but Kress’ herd is a cross of Ayrshire, Holstein, Jersey, and Normande. The animals are healthy because they live outside, and they only see the vet about twice a year. Kress has very little foot rot or pink eye and no serious fly issues which all means lower cost of production for vet bills and healthier animals for better production. In turn Kress is managing those animals to also improve land production. “Over the years I haven’t spent a lot of money on inputs,” says Kress. “I’ve used the animals to improve soil fertility which has helped increase carrying capacity. When my dad was running the place back when I was a kid, we had Holsteins weighing 1,500 pounds. One acre would support one of those cows. Now I’m running my smaller crosses that weigh about 1,000 pounds. It takes one acre to support two of those cows.” With planned grazing, Kress has been able to increase his carrying capacity by 25%. “I also quit doing AI about 10-12 years ago,” says Kress. “I wasn’t getting the conception rates I wanted and it was tricky with the seasonal dairy. With AI, I was getting 60% conception. Now using the bulls we have a 70-80% conception rate.” Kress admits that grazing implementation quality has varied over the years. “I’d probably give us a 6.5 out of 10 for paddock moves before Mike joined us,” says Kress. “Mike really pays attention to the land and the animals, and he’s moving the animals every 12 hours. He’d probably give us an 8 or 9 score now. We’ve been working with 14-16 day recovery periods in May and then as long as 60 days in the summer slump with even longer through the winter. We’ve got our stock density at 60 cows/acre (60,000 pounds/acre), but we are still seeing some selectivity so we try to get them out of the pasture with some residual left. We’ve found with dairy cattle we can’t let the forage get above 12 inches.” Kress still has a few areas of the farm that could use animal impact, but his monitoring has shown the increase in litter, less bare ground, and more grass than there was several years ago. Organic matter has increased and Kress says that dandelions (a fertility indicator species) have increased, and goldenrod (an infertility indicator) has decreased. Energy and Sustainability While there are a number of reasons that Kress is looking at transitioning to growing crops for the KTS herd, energy and feed costs were a big driver. Kress notes, “When I was taking Ed Martsolf’s class, he made the comment, ‘How many trucks are pulling into your farm and how many are leaving.’ You have to look at what your farm is producing and what you are buying in. We do feed grain and a ton of chopped corn used to cost $300. Now it costs $700. Increased energy costs are causing increased production costs. The more I can produce here with a lower cost of production/cost, the better able Mike will be able to turn a profit with the dairy. We want to create a sustainable model. We’re not going to push the crops hard because we want to build soil fertility as part of the model.” Kress has been using animal impact to “plow” the ground, then he’ll disc in the spring and seed. Going forward he wants to develop a crop rotation of grains and forage with fallow years as well. He’s looking at putting 15-20 acres a year into his rotation as he experiments and develops his system. He is receiving some mineral royalties now which is allowing him to make some of these transitions, but he knows that energy is the big issue and he wants to figure out a system that will be resilient in the years to come as energy and food becomes more expensive. “Without my training in Holistic Management, I might have become reliant on those mineral dollars,” says Kress. “Now I see that money as an insurance policy or buffer that is helping make the changes I need to make. I’m ready to take on a different risk with my focus on cropping. My dad went broke doing conventional cropping in the ‘60s-‘80s. On the other hand, my granddad made a huge success in the ‘40s and ‘50s with his cropping. The key was obviously soil fertility. So as part of our transition we will be working with Organic Valley who has a program where their agronomist will work with you to analyze your soil samples. We’ve also been working with their veterinarians as well. “Right now I’m working on a Holistic Financial Plan for the crop enterprise and it’s been fun because it is so different than the plans I’ve done for the dairy over the years. One of the key decisions I’ll need to make is if I want to invest in some of the equipment I don’t have or if I want to hire it out.  What’s interesting to see is that I have a lot less income and a lot less expense. My net is about the same but there is a lot less risk. On the other hand, Mike has gone from being an employee to a business owner so his risk has increased, but so has his ability to build equity.” So as KTS Farm moves forward providing organically certified milk to Organic Valley, there are now two farmers where there used to be one. The growth and transition of this small farm is an example of how to survive in the challenging business of dairy farming. Because Kress took the time to determine his whole farm goal and has consistently made decisions toward it for 20 years, he has been able at age 56 to create and implement a succession plan for that business to continue to provide a quality product while improving the land base on which it relies.